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Welcome to the Rental Market report for Q4 2019. It’s the second in our new quarterly series that accurately tracks the changes in achieved rents over time. The Report reveals that rental growth hit a three-year high on a lack of rental supply but the increase in rents is still below the growth in average earnings.
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, we've recorded a 4% drop in the supply of homes coming to the market for rent.
At the same time, we've recorded an 8% increase in rental demand over 2019. The combination of static supply and rising demand results in upward pressure on rental values
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.
Rental rise and fall: the regional picture
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.
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. This is 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.Rental growth - London region and UK excluding London
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.
Get in touch
If you're keen to learn more about the Hometrack rental index please do get in touch with the team at email@example.com.
This quarter’s report reveals that the increase in private rents is failing to keep pace with growth in average weekly earnings. This means the affordability of renting has improved over the last three years, with rents rising at half the rate of average UK earnings growth (up +4% annually). This report forms part of a new rental series that accurately tracks the changes in achieved rents over time.