As the housing market seemingly cools, the rental market is heating up. At least, it is from a supply and demand perspective. Is there a shortage of rental properties?
Over the last three years, the available rental stock in the UK has been declining, meaning renters have fewer choices over where they live. This poses a problem because a lack of rental stock pushes prices up. Especially in the aftermath of rising interest rates.
How big is the issue tenants currently face, and is there a solution? We unpack what’s happening in the rental market and if there is a shortage of rental properties available.
What’s happening with the rental market?
The number of rental properties is down, with some reports suggesting the figure has fallen by an alarming 40%. Fewer available properties have led to even more demand in a housing market where an extra 300,000 homes need building each year.
Why is there a shortage of rental properties available?
There are several reasons why there is a shortage of rental properties available. Since 2016, landlords have been paying more to let their property. First came the stamp duty increase, with second-home owners paying an additional 3% on Stamp Duty Land Tax. Then the amount of mortgage interest landlords could claim as an expense was phased out over several years.
Beyond that, an increase in regulation, such as homes meeting specific EPC requirements and more checks required on properties. Meant many landlords faced spending thousands of pounds on their buy-to-let properties. Of course, increased regulation is good for tenants, but all the factors combined have seen more landlords selling up and fewer investing in buy-to-let properties. The result is a rental shortage.
What do fewer available properties mean for renters?
Ultimately, decreased available rental properties mean increased competition for homes and higher rents. It all points to rising rents, with many landlords pricing their properties based on the demand in the area. While also factoring in the increase in interest rates that have likely seen their buy-to-let mortgages skyrocket.
According to the Office for National Statistics (ONS), rental prices in England increased by 3.8% in the last 12 months. In London, the rise is even more severe. According to the UK’s largest tenant referencing service. The average new tenancy is £1,989 per month, a 13.1% increase compared to this time last year.
Rents are spiralling and leaving many renters priced out of the market. They either need to flatshare or live at home with relatives. The UK is also in the midst of a cost of living crisis, meaning rents are more unaffordable than ever for many renters.
Are people bidding on rental properties?
The current situation has seen renters take extreme measures in the hope of securing a tenancy. As well as putting up more cash upfront, some are offering landlords CVs for their children and photos of their well-behaved dogs.
And while it might be hard to believe people are going to these lengths, you can see why. The shortage has led to bidding wars on rental properties, with tenants doing all they can to secure a home.
Is there a solution for the shortage of rental properties?
Rental market demand is expected to remain high throughout 2023. Primarily as rising interest rates price many first-time buyers out of purchasing their first house. Yet, some solutions, either currently available or on the horizon, can help mitigate some of the shortage of rental properties.
Build-to-rent properties are professionally managed and designed solely for residents who rent their homes. They’re either owned by the developer or operations company that looks after the property. Meaning the entire setup is professionalised, and tenants can often expect faster services than they do in traditional rental homes.
The number of build-to-rent properties is on the rise, too. By 2032, it’s expected to account for 380,000 homes, which is 8% of the private rental sector. Build-to-rent is often seen as an ideal alternative for renters, as it provides them with more security and flexibility. Plus on-site social spaces, such as gyms, lounges and outdoor spaces.
Fairer private rental sector
The fairer private rental sector white paper set out to improve the experience for renters, giving them more security in the process. While many of its suggestions are still going through parliament, it’s regarded as a positive piece of legislation (should it go through) that can change the dynamics of the rental market.
Yet, while it will benefit renters, elements of the report – such as the abolition of Section 21. Have many worried that even more landlords will leave the market and the shortage of stock will increase further. For now, however, the report is seen as a step change in the rental market that will give tenants more rights and security.
The rental shortage
The shortage of rental properties is causing chaos in the market, with many renters doing what they can to secure a home. While the current landscape doesn’t look like it’ll change much in the next 12 months. Options like build-to-rent offer an alternative and can help with the current demand, while the white paper focused on a fairer rental sector looks to solve some of the issues faced by modern-day tenants.
Last Updated: November 21st, 2022