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Rental growth hits three year high on lack of rental supply

22nd January 2020

  

  • UK rental growth is up +2.6% annually to £886 pcm in Q4 2019 – the highest rate in three years
  • Zoopla recorded a 4% contraction in the supply of homes available to rent over the last two years, while the demand for rented homes has increased by 8% over 2019
  • Rental growth continues to run below the annual growth in average earnings (+3.8%, ONS)
  • Rents in London are rising at 2.8%, the highest level for almost four years, as the available supply of homes for rent in the capital declines by 19% since 2017
  • Three cities are registering rental growth over 5% per annum – York +5.0%, Bristol +5.5% and Nottingham +5.8%
  • Meanwhile, rents are falling in three cities - Aberdeen (-2.8%), Middlesbrough (-1.1%) and Coventry (-0.1%)
  • Over the last decade average rents have grown from £700pcm to £886pcm, an increase of 27%, compared to 26% growth in average earnings. 

Wednesday 22nd January, London: Zoopla,the UK’s most comprehensive property destination, reports that the annual growth in private residential rents has almost doubled – up from 1.4% a year ago, compared to 2.6% today, as demand increases in the face of a modest decline in rental supply. The findings are reported in Zoopla’s latest quarterly Rental Market Report – an analysis of trends in rents and rental affordability including a rental index powered by Hometrack.

 

Rental growth accelerates on scarcity of supply and rising demand

New investment in private rented housing has fallen since 2016 as private landlords respond to tax changes and lower yields in southern England. Rental supply grew in the years running up to 2016 and, since then, Zoopla has recorded a 4% drop in the supply of homes coming to the market for rent. At the same time, Zoopla has recorded an 8% increase in rental demand over 2019. The combination of static supply and rising demand results in upward pressure on rental values, which is being picked up by the index over the last quarter.

While rental growth has picked up over 2019, it continues to run below the growth in average earnings, which currently tracks at +3.8% (ONS). The growth in average earnings has outpaced the growth in rents for the last three years. While this has improved the headline measure of rental affordability, the affordability of renting varies widely across UK cities. At present, the average renter is spending 31.9% of their annual earnings on rent* – unchanged from a year ago.

The rental rise and fall
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 Bristol and York, the relatively high cost of buying a home is likely to be supporting rental demand and, in turn, rental growth; in Nottingham, demand for renting has grown faster than the national average over 2019.

Despite the overall pick-up in rents at a national level, there are three cities where rents are falling – Aberdeen, Middlesbrough and Coventry. In Aberdeen, rents are falling at their lowest rate for 4.5 years as rental supply starts to reduce. Rental growth in Middlesbrough is also weak – as is the case across the North east of England – as weaker employment growth and affordable home ownership keep rental demand in check. Weaker growth in Coventry is in contrast to the period between 2014 and 2016, when rental growth raced ahead by 5-10% per annum stretching affordability levels. The supply of homes for rent per agent in Coventry is 20% above the national average, minimising competition amongst renters, and resulting in flat rents over 2019.

Rental growth in London hits four year high

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. The available supply of homes for rent, per estate agency branch, in London has declined by 20% over the last two years - a result of much lower new investment by landlords and disinvestment by others, together with renters staying longer in their home. The drop in availability is supporting higher rental growth, but stretched rental affordability in London is limiting the level to which rents can increase when compared to other cities, where there is headroom in rental affordability to allow for higher rents.

A decade of rental growth

Over the last decade, average rents have grown from £700 per month to £886 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%). Like Coventry, Edinburgh has recorded a sustained slowdown in the pace of rental growth over the last 18 months with growth running at +3.5% as affordability levels limit the scope for rental growth.  

Richard Donnell, Research and Insight Director at Zoopla, comments:

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.

“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. 

“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.”

Paul Chapman, National Managing Director, Sales and Lettings, Countrywide, comments: “2019 has been a year of change for the lettings industry and it has certainly been a year of two halves. The introduction of the tenant fee ban at the end of May resulted in a change in market seasonality as some customers chose to delay moving until 1st June 2019 or thereafter.

“Tenant demand has been strong with an even busier summer than usual continuing into Q4. Stock availability continues to be a challenge with some landlords experiencing an increase in rental price and shorter void periods, both of which go some way towards offsetting the increased costs as the requirement to comply with additional legislation continues.”

* Affordability is defined as the monthly rent (weighted average for a 1-4 bed home) as a proportion of gross earnings for a single person (ONS).

Ends

Notes to editors

 

Table 1 – Headline UK Rental Growth

Area

Average rent
(£pcm)

% yoy 2019Q4

% yoy 2018Q4

5 year CAGR

Affordability - single earner - current

Affordability - single earner - 5 yr ave.

Time to rent - current (days)

UK

£886

2.6%

1.4%

2.0%

31.9%

32.6%

17.7

UK (ex. London)

£733

2.5%

1.3%

2.3%

26.4%

26.9%

19.1

Country

England

£910

2.5%

1.3%

1.9%

32.3%

33.0%

18.9

Scotland

£628

3.6%

1.7%

1.8%

23.6%

24.2%

14.7

Wales

£599

2.7%

2.4%

2.6%

24.8%

24.8%

18.4

N Ireland

£581

1.9%

1.7%

2.7%

24.9%

25.6%

21.9

English Regions

East Midlands

£648

3.6%

2.9%

3.2%

26.2%

25.8%

18.3

South West

£795

3.3%

1.2%

2.7%

31.1%

30.7%

16.0

North West

£607

2.8%

0.9%

2.3%

24.1%

24.6%

20.3

Yorkshire and Humber

£583

2.8%

1.3%

2.2%

23.8%

24.0%

19.3

London

£1,641

2.8%

1.5%

1.1%

46.0%

48.5%

15.0

Eastern

£881

2.1%

0.7%

2.7%

30.3%

30.9%

18.7

South East

£1,015

2.1%

1.0%

2.0%

33.3%

33.8%

20.0

West Midlands

£672

1.6%

1.8%

2.7%

26.7%

26.9%

20.7

North East

£514

0.5%

0.4%

0.8%

21.7%

22.7%

21.5

 

Table 2 – Summary of key rental market metrics – 40 cities

 

Cities

Average rent
(£pcm)

% yoy 2019Q4

% yoy 2018Q4

5 year CAGR

Affordability - single earner - current

Affordability - single earner –

5 yr ave.

Time to rent - current (days)

Nottingham

£679

5.8%

4.6%

4.0%

22.3%

26.1%

16.7

Bristol

£983

5.5%

2.2%

4.1%

32.3%

36.6%

10.7

York

£844

5.0%

3.7%

3.0%

27.7%

33.2%

12.8

Leeds

£715

4.4%

0.0%

3.5%

23.5%

28.6%

16.0

Preston

£571

4.0%

-0.9%

1.1%

19.0%

23.6%

18.3

Stoke

£520

3.9%

1.7%

2.4%

17.1%

20.5%

24.0

Leicester

£727

3.7%

2.9%

3.7%

23.8%

28.4%

22.4

Edinburgh

£950

3.5%

5.1%

5.0%

31.2%

34.3%

13.0

Norwich

£765

3.3%

2.0%

3.2%

25.1%

26.2%

16.7

Liverpool

£586

3.2%

1.0%

2.2%

19.3%

23.4%

20.7

Bournemouth

£954

2.9%

1.2%

2.3%

31.3%

37.0%

20.3

Cardiff

£785

2.9%

2.6%

3.2%

25.7%

31.9%

17.7

Manchester

£732

2.9%

1.5%

3.2%

24.0%

29.1%

17.7

Plymouth

£670

2.8%

-0.1%

1.4%

22.0%

26.3%

18.7

Derby

£579

2.8%

1.0%

1.8%

18.8%

23.4%

16.0

London

£1,577

2.8%

1.5%

1.1%

51.9%

47.3%

15.7

Hull

£471

2.7%

1.8%

1.9%

15.5%

19.3%

25.0

Brighton

£1,292

2.7%

2.4%

2.9%

42.3%

41.9%

17.7

Milton Keynes

£926

2.4%

0.8%

2.5%

30.4%

30.9%

21.0

Glasgow

£636

2.4%

3.8%

3.3%

20.8%

23.7%

14.0

Portsmouth

£858

2.4%

1.4%

2.4%

28.1%

28.2%

15.3

Gloucester

£702

2.4%

2.5%

3.0%

23.1%

26.7%

16.7

Cambridge

£1,200

2.3%

2.3%

2.2%

39.6%

41.9%

13.0

Belfast

£599

2.2%

2.0%

2.9%

19.6%

25.9%

22.1

Oxford

£1,369

2.1%

2.1%

2.5%

45.0%

45.1%

21.7

Reading

£1,067

2.0%

1.8%

1.4%

34.9%

35.6%

20.7

Swansea

£600

2.0%

-0.5%

1.7%

19.7%

25.2%

20.0

Ipswich

£677

1.8%

2.4%

3.1%

22.2%

23.4%

21.0

Southampton

£843

1.7%

0.5%

1.5%

27.6%

28.2%

20.0

Birmingham

£668

1.6%

2.3%

2.8%

22.0%

26.6%

19.0

Northampton

£751

1.5%

2.5%

3.5%

24.6%

30.3%

16.7

Huddersfield

£519

1.4%

2.5%

1.6%

17.0%

21.5%

20.5

Sheffield

£583

1.3%

2.0%

1.6%

18.9%

24.0%

20.7

Swindon

£735

1.3%

0.8%

2.9%

24.0%

28.9%

19.7

Bradford

£489

1.2%

0.8%

1.0%

15.9%

20.4%

20.3

Southend

£887

0.9%

0.0%

2.6%

28.9%

31.3%

22.7

Newcastle

£584

0.2%

0.4%

1.2%

19.1%

25.3%

20.7

Coventry

£807

-0.1%

-0.1%

3.2%

26.4%

32.7%

20.0

Middlesbrough

£463

-1.1%

-1.5%

-0.4%

15.1%

21.1%

25.7

Aberdeen

£597

-2.9%

-4.0%

-8.8%

19.4%

28.0%

27.5

 

About Zoopla’s Rental Market Report
Zoopla’s rental index uses the same methodology as the Zoopla UK Cities house price index to generate a rental series that accurately tracks the changes in achieved rents over time. We build data across over 500 geographies - UK, country, region, city, postal area and local authority and are publishing data for 55 areas in this Rental Market Report.

 

The primary input data is Zoopla rental listings data with additional data on housing attributes and demographics used within the index algorithm and models. The listings data is adjusted to reflect the difference between asking and achieved rents. The index uses over 125,000 rental data points per month.

 

We use a repeat sales regression model where pairs of lettings for the same or similar property in a local area are used to generate a raw index series. We build rental index series for 1, 2, 3 and 4 bed homes at each geographic level and aggregate these into an ‘all property’ type index using a rolling 3 year ‘stock weight’ by bedrooms. The index series are not seasonally adjusted.

 

The purpose of a rental index is to accurately track the change in rents over time. We have tested the accuracy of our rental index against a large, independent sample of achieved rents for single homes over time. This testing has confirmed our index provides an accurate view of the change in achieved rents over time.

- Ends -

For further information, please contact PR Team on pr@zoopla.co.uk or +44 (0)20 3873 8770.

Zoopla’s rental index uses the same methodology as the Zoopla UK Cities house price index to generate a rental series that accurately tracks the changes in achieved rents over time. We build data across over 500 geographies - UK, country, region, city, postal area and local authority and are publishing data for 55 areas in this Rental Market Report.

 

The primary input data is Zoopla rental listings data with additional data on housing attributes and demographics used within the index algorithm and models. The listings data is adjusted to reflect the difference between asking and achieved rents. The index uses over 125,000 rental data points per month.

 

We use a repeat sales regression model where pairs of lettings for the same or similar property in a local area are used to generate a raw index series. We build rental index series for 1, 2, 3 and 4 bed homes at each geographic level and aggregate these into an ‘all property’ type index using a rolling 3 year ‘stock weight’ by bedrooms. The index series are not seasonally adjusted.

 

The purpose of a rental index is to accurately track the change in rents over time. We have tested the accuracy of our rental index against a large, independent sample of achieved rents for single homes over time. This testing has confirmed our index provides an accurate view of the change in achieved rents over time.

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