Rents reach least affordable level in 10 years

Rising rental demand and a lack of homes for rent have seen the average UK rent soar 12.1% in the year to October 2022.

And with wages rising just 6% in the last year, renting is now less affordable than at any time in the last decade.

Renters are paying an extra £117 per month on rent than they were this time last year, spending £1,078 per month on average. This adds £1,400 to their annual rental costs.

And it means the average UK renter is now having to spend 35% of their income on rent. 

This is the highest proportion of wages renters across many regions of the UK have had to put towards rent in the last 10 years.

The only exceptions are London, the South East and East of England, where renters are spending a slightly smaller proportion on rent than they did in 2015-16.

Rental growth is much lower for renters who extend their tenancies and stay in the same property, than those who begin new tenancies.

For the 75% of renters who do not move each year, rental increases were a more manageable 3.8% in the year to October 2022, according to the Office for National Statistics.

Renters are increasingly seeking smaller homes, shown in a rise in demand for 1 and 2 bedroom flats and a drop in demand for houses.

Enquiries for 1 bedroom flats now account for 32% of all rental enquiries in the UK as renters look to reduce costs by downsizing. 

There’s been a steady increase in house-sharing, with recent research from the Resolution Foundation finding that the space per private renter has dropped 16% over the last two decades.

While we don’t have further data to quantify the impact of house-sharing, we suspect more sharing in light of the cost-of-living crisis will support rental growth in many parts of the country over the coming months.

In London, where house-sharing is much more common, we expect the impact of sharing on growth has already been felt and it’ll continue to be the chronic supply/demand imbalance that pushes rents up.

A severe imbalance between the number of available rentals and the number of people looking for a home is causing this huge growth in rental rates.

The number of homes for rent is 38% lower than average over the last five years, and down 4% compared to last November.

The shortage can be put down to several economic and policy factors, like landlords selling up due to higher taxes or greater regulation.

In contrast, estate agencies are getting 46% more enquiries about rental homes than they would expect, based on enquiry levels over the last 5 years.

There are a number of things contributing to rental demand, including higher mortgage rates in the sales market and renters staying in tenancies for longer to avoid rent rises.

Number of homes available for rent hits almost 40% below average

It’ll come as no surprise to any London renter that the capital has seen the biggest rise in rents in the last year.

Rents in London are up 17% compared to a year ago, which works out to an extra £273 per month.

Other big regional cities are also seeing rents rise quickly, including Manchester (+15.6%), Glasgow (14.1%), Bristol (12.9%), Sheffield (12.4%) and Birmingham (+12.3%).

With strong employment and large student populations, the rental sectors in these cities are struggling to cater to the number of people who need a rental home.

Rents rising fastest in major UK cities

These rises will be a growing concern for all renters, especially those on low incomes, as living costs continue to go up at the same time.

While we expect rates to keep rising in the short-term, rents rising faster than earnings is not sustainable in the long-term. 

If rental growth were to continue at 12% during 2023, renters would need to put an even higher 37% of their earnings towards rent.

This is not feasible and the growing unaffordability of renting will help flatten the growth of rental rates. Along with an anticipated modest improvement in rental supply, we predict 2023 will end with 4 to 5% annual rental inflation.

What's going to happen to the rental market in 2023?