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Room for growth: rents are rising below the level of earnings, says Zoopla

Despite the widening supply-demand imbalance in the private rented sector, it is now generally more affordable to rent a property with costs increasing below the level of earnings growth, the latest report from Zoopla shows. 

Average rents increased by 2.6% to hit £886 per calendar month (pcm) at the end of 2019, and although this is the highest rate in three years, it remains below the annual growth in average earnings, which stands at 3.8%, according to the ONS. 

Consequently, the typical renter now spends 31.8% of their earnings on rent, down from a peak of 33.3% in 2016, according to the analysis of trends in rents and rental affordability including a rental index powered by Hometrack.

With Zoopla recording a 4% drop in the supply of homes coming to the market for rent, coupled with an 8% increase in rental demand over 2019, there has unsurprisingly been upward pressure on rental values, albeit at below the growth in average earning. 

Richard Donnell, research and insight director at Zoopla, commented: “The scope for landlords to increase rents is greater when earnings are rising faster than rents and this has been the case for the last three years. The positive news for renters is that the growth in rents is running below the growth in average earnings.” 

At a city level rental growth varies from +5.8% in Nottingham to -2.9% in Aberdeen. 

There are three cities where rents are rising above +5% - York, Bristol and Nottingham, which all have below average levels of homes for rent when compared to the national average. 

In contrast, there are three cities where rents are falling – Aberdeen, Middlesbrough and Coventry.

Rents in London fell over 2017 and 2018 on weaker demand, but they are now increasing by +2.8% - the highest rate for almost four years, owed largely to a 20% drop in housing supply in the PRS over the last two years. 

Donnell added: “A lack of supply and real wage growth is behind the increase in average rents across the country over 2019. 

“New investment by landlords has fallen since the introduction of tax changes in 2016 and this has been felt most keenly in southern England where property values are highest and yields lowest. This is creating scarcity and explains why rents are rising in the face of increased rental demand as levels of employment continue to grow.” 

Over the last decade, average rents have grown from £700pcm to £886pcm today, an increase of 27%, in line with the growth in average earnings over the same period (26%).

The highest growth city is Edinburgh, where rents have grown by 50% (an annual average of 4.2%), followed by Bristol (45%) and Coventry (45%). 

Donnell believes there is room for further growth. 

He continued: “We expect the acceleration in rental growth to moderate over the first half of 2019, which is typically a period of slower rental market activity. We expect rents to increase by 3.5% over 2020 as a lack of supply supports faster growth. 

“With further policy changes expected from the Government to provide more security of tenure for renters we expect the supply of rented homes to remain constrained, which will support rental growth over 2020. With robust earnings growth, the impact on rental affordability will be muted.”

Poll: Do you think rents will increase on the back of a lack of supply and real wage growth?

PLACE YOUR VOTE BELOW

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    I'd like to qualify my YES answer to the above, A main reason for rent increases - is the constant Government intervention and Regulation, much if not all of it focused ( Biased against ) the PRS.
    Recently, Electrical certificates and intended Possession changes.
    Everything has a knock on effect and nobody is highlighting the effect this is having on TENANTS ( who are Landlords Best -{ only ] Customers ! )

  • Matthew Payne

    If you look at the detail of Hometracks latest rental survey, rents in H2 2019 increased yoy in 26/40 cities at a rate above inflation, and the remainder were around or a fraction below inflation, bar the 3 where rents dropped. The top 20 were 3-6% higher and in places you may not expect like in Leeds, Stoke and Norwich, there are not may places in the country that are not affected.

  • Paul Barrett

    Govt isn't concerned with the effects of its bonkers anti-private LL policies.
    It is trying to eradicate them anyway so simply doesn't care about the woes of the LL or for that matter the tenant.

    Of course such a policy begs the question of where all the tenants currently housed by small LL are supposed to live?
    But of course Govt is too thick to appreciate this will occur.
    As rents increase in reaction to the increasing cost burdens being imposed on LL there will be an increasing clamour from the usual suspects for rent controls.

    Such controls are already being impised in Scotland.
    Imposition of such controls will simply accelerate the departure of even more LL from the sector.
    Rent controls would massively effect property capital values
    Rental cover would be degraded to the point where most LL would be in breach of LTV covenants causing many lenders to require mortgage debts are reduced to the rental cover at the controlled rent levels.
    Any LL wishing to buy would have to put in massive unsustainable deposits.
    LL would struggle to achieve current market value in the event they chose to sell if rent controls come in.
    Better to sell NOW before all the imperatives of rent controls are realised.
    Rent controls would destroy all the efforts of LL over the past 20 years.
    Better to get out now while the going is relatively good and there are mug buyers wishing to get into the LL game along with homeowner buyers.
    The writing is on the wall.
    The Tories will with political imperatives in mind introduce rent controls.
    Not just yet.
    About a year before the next GE.
    Look upon the next 4 years as an excellent opportunity to escape the PRS with most of your CG.


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    There are no rent controls in Scotland currently, although the SNP- supporting Labour MSP, Monica Lennon was pushing for them until it was pointed out that this would mean all rents would increase by as much as possible as often as allowed. She can't be a proper SNP supporter as it seems she actually listened. However currently we can't increase rents more than once a year, which means most of us now DO increase them annually, whereas before we tended to wait until decent tenants had left and only increased them for bad tenants to get the message across during the lease.

    Paul Barrett

    My understanding was that that there were supposed Rent hardship areas where rents would be controlled.
    I presume it is these that are not to be now introduced?
    Is there not a limit on how much increased annual rent you can go for?
    Does the S13 process operate in Scotland?
    If so are many cases referred to the Rent Tribunal as can still be done in England.
    Technically the Rent Tribunal is a form of rent control but none of my increases have ever been referred.
    Tenants have simply given NTQ which is fine by me as I obtain new tenants at higher rents!!

     
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    There was talk of rent pressure zones where tribunals could limit rent increases but they are mainly in areas where no sane landlord would buy or decent tenants want to live. They are probably a perfect example of being careful what you wish for as they are destined to become even more deprived and properties even further in disrepair as they have no chance of any gentrification or even normalisation. That said, it wouldn't surprise me if the SNP were to go ahead with them and show case them as a success, along with our failing schools, hospitals, shipyards, railways and everything else that they clamoured to control and wrest from Westminster's slightly more sane control.

     
  • icon

    There is legislation that enables the Scottish government to impose a Rent Pressure Zone. ( RPZ ) From recollection, there was talk of the possibility of it in Glasgow but it never happened. There are NO current RPZ's. which must in itself say that they're more scared of the consequences and having them was just 'for show'
    In regard to Rent increases, such as England's Section 13 of the Housing Act, where out First Tier tribunals can determine rent levels ( but see * below ) Scotland has a similar provision where their tribunals can hear applications against increases.
    * ( in England ) If a Tenancy agreement has a clause saying that the level of rent can be considered [to be increased] at any time , or given period, That REMOVES a Tenants right to appeal ANY increase to the FTT, as they simply don't have the jurisdiction. Rowen v Contour Homes, 2007.

  • Paul Barrett

    Ahh! I always believed a S13 rent increase could be referred to a FTT.
    When the revised; allegedly more effective S8 process is introduced following S21 abolishment what will be in place to prevent LL increasing rents to unaffordable levels to get rid of a wrongun tenant!?

  • icon

    They'll probably bring in some legislation at that time to stop it Paul, ( it has been mentioned, as they've already thought of it ) but at present Rowen v Contour Homes applies.

    Paul Barrett

    So de facto that will mean effective rent control.
    Surely it is for the LL to determine based on his own business dynamics what rent levels he wishes to achieve
    Every LL and every property will have its own business dynamic.
    A simple permitted percentage rent increase maximum doesn't address business dynamics.
    As a big example what if to afford S24 being changed to disallow any tax credit the LL needed to increase rents above a supposed FTT maximum
    If a LL is prevented from trying to achieve higher rents to meet additional business issues then his investment could become unviable resulting in the LL having to sell or subsidise his investment property.
    Just plain bonkers.
    Market forces should be given their full rein in light of any prevailing market at the time.
    If the LL asks too much rent such that he doesn't get any takers then rent requirement would need to be reduced.
    It is simply NOT viable for ever more burdensome regulations to be imposed to not expect a consequent attempt by LL to increase rents

     
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    Electrical Certificates becoming mandatory in April 2020 as understand it but we have them for years already because of one sided HM0's Licensing that only applies to people who are not related in the same household, but we all know who are related and the culture they are many on Benefit & housing Benefit and no rules apply. I wonder if the Section 13 you refer to in the same one that was used in a case that I was party to. The case was brought to tribunal under Section 12 which said it shouldn't cost anymore than £500.00. However, it ended up with opposition lawyers claiming costs under 13 & Tribunal allowed which means unlimited costs, if that was law before we applied we may not have applied so we got hit. Subsequently it became case law which means anyone is not likely to go there with this scenario in front of them, really unlimited costs who is going to take that on.

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    Not sure if your referring to the same thing that Paul raised and I answered, Sec 13 Housing Act regarding Rent Increases ?

     
  • icon

    Yes, 5 year certification, which BOTH main Landlord Associations ( merging now ) sold Landlords out on and agreed. Instead of making the point that, Electricity can't only be Dangerous to tenants of Private Rented Property !!
    If there's a perceived danger, then Tenants in Social and Local Authority accommodation, i.e ' ALL ' Tenants should have the protection of a 5 year cert.
    Fact of course is, that the danger arises from either Faulty appliances ( such as the Grenfell fire ) or Tenants overloading sockets. Neither which a certificate will prevent.
    Tenants will have to pay the cost, as with EVERYTHING, cost in the business process are ultimately paid for by the end user. This is a concept Govt both don't understand, and are Hood-winking Tenants by not explaining that the Govt Regulations in last decade has been the main driver of Increased Rent.

  • icon

    Yes I think Section 12, rule 13.

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