Renewed demand for city centre living and a shortage of homes to let drove up annual rental prices by 8.3% in quarter four, a 13-year high for growth.
Average UK rents reached £969, a £62 a month rise since the beginning of the pandemic, according to our Rental Market Report for Q4 2021.
Inner-city London tenants felt the imbalance of demand and supply even keener as annual rental growth exceeded 10%.
At a time when households are feeling the pinch as the cost of living rises, further rent increases add to affordability pressures.
Rental affordability in-line with 10-year average
However, our property data analysis shows that rent as a proportion of gross income for a single earner was 37%. Although this is higher that the pandemic dip of 34% prevalent during most of 2021, the affordability metric is broadly in line with the 10-year average of 36%.
Rent versus affordability by region and country
Regionally, Greater London led the way with rent increases of 10.3% annually. Looked at in isolation, the rent rise shouldered by Londoners appears particularly severe. But after a large decline in London rents in March 2020, the 10.3% increase translates to a rise of £18 a month pushing the average rent up from £1,622 in March 2020 to £1,640 in December 21.
Monthly rent in Greater London accounts for 52% of a single person’s gross monthly earnings, compared to the ten-year average of 53%.
Northern Ireland’s 10.2% rent rise drove housing costs up to £646 a month. Despite the double-digit annual growth, rent accounts for a much lower proportion of income at 29%.
In England, rents in three other regions exceeded the national average growth rate of 8.3%.
In Yorkshire & Humber after an 8.5% annual increase in rents in Q4, tenants pay £655, accounting for 27% of monthly pay. West Midlands tenants experienced an 8.6% rise to £728 equating to 29% of monthly pre-tax pay spent on rent. In the Southwest this rose to 36%, 4 basis points higher than the long-term average following a 9.5% annual rise pushing rents up to £897.
In Wales, 29% of a single earner’s gross monthly pay is spent on rent which, after a 9.8% annual rise, rose to £686 in December.
Scottish rent rises were more moderate. A 4.8% rise pushed rents up to £639 a month, monopolising 24% of a single earner’s gross pay.
Inner city appeal drives up rental demand
Our analysis of residential property data reveals that demand for rental properties in January was 76% higher than any January in the past four years
Although the pandemic-fuelled desire to move to larger homes with outdoor space is showing no signs of waning, the race for space is no longer at the expense of the city centre flats market.
Tenants have flocked back to city centres as offices have re-opened, students have returned and international travel has been given the green light.
Inner city rental price growth is by far outstripping rises in the commuter towns outside major cities.
This time last year, our Rental Index reported the ‘halo effect’ where tenant demand was higher outside cities than in the centre. Although demand in the suburbs remains higher, city centres have almost caught up.
London is the most prominent example. Inner-city rents have risen 11% year-on-year compared to 5.6% in outer London.
Major UK cities Manchester, Birmingham. Leeds and Edinburgh all follow the same trend but with a narrower margin between their inner and outer city rates of growth.
Shortage of available rental property supply
The strong New Year bounce in tenant demand is set against a backdrop of short supply caused by several factors.
The stock of rental properties currently available across the UK is 39% lower than the five-year average around this time of year.
House price growth was strong in 2021. Our December House Price Index recorded a 7.4% annual rise in house prices. More than 6.5 million homes rose in value by £30,000 or more.
The sharp rise in prices proved too tempting for some landlords. Our analysis found that around 8% of previously rented properties were put up for sale in the second half of last year as landlords moved to realise their gains.
The allure of Airbnb has also returned. Owners of short-term lets who looked for long-term renters to fill their properties when the leisure and hospitality sectors were closed, have their eye on the tourism market once more.
Add to that the lack of investment into the buy-to-let sector following less favourable tax treatment and you have serious supply side constraints.
Demand pressures on rental availability set to ease
Demand, however, is expected to ease into quarter two in line with seasonal trends. Signs of a let up have already been noted in February.
Tenants’ unwillingness to move, deciding to stay in their current property and agree new terms with their landlord in the face of higher rents, will put less pressure on supply.
We expect the pace of rental growth to slow to 4.5% across the UK, excluding London and 3.5% within London.