Landlord News

Zoopla: There’s room for growth in rent prices

Andrew Truglia - January 23, 2020

It is now generally more affordable to rent a property when compared to previous years with rental costs increasing below the level of earnings growth.

The report from Zoopla shows that despite the widening imbalance between supply and demand in the private rental sector (PRS), average wages have increased at a faster rate than the average price of renting a property, meaning that renting is now more affordable. 

Average UK rents increased by 2.6% to £886PCM in December 2019, but average earnings have increased by 3.8% according to the ONS.

In terms of how much of their salaries renters spend, this translates to the average renter spending 31.8% of their wages on rent, which is down from the 2016 peak of 33.6% according to Hometrack. 

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.” 

This isn’t the case for all of the UK though, at a city level, Nottingham is seeing a very high rate of growth in rents, with a 5.8% rise in the past year. York and Bristol are also seeing growth of above 5%. 

Rents in London dropped between 2017 and 2018 due to 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.” 

He believes that more growth can be expected in 2020:

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.”