‘A chronic imbalance’ of supply and demand for rental properties has led to a surge in rents over the last year, with no slacking in the pace of increases expected soon.

This is the conclusion reached by Zoopla’s latest Rental Market Report.

‘Strong demand is pushing rents higher’, said the portal’s director of research Richard Donnell.

But where there was once a dash for space, small energy-efficient lets are now the rage. ‘Renters are adapting their strategies and starting to seek out smaller homes at lower rents and running costs’, said Donnell.

The stock of homes for rent remains almost half the average for the last five years, said Zoopla. And the flow of new homes to rent is running 7 per cent down on the long-term average.

This is partly because renters are staying put to avoid rent increases.

‘At the same time, private landlords continue to sell homes to rationalise their portfolios in the face of tax and regulatory change’.
Rents are rising quickly across all parts of the UK, said Zoopla. Increases range from an average 7.6 per cent in the North East to almost 18 per cent in London.

This last is fuel by a bounce-back from rent falls during the Corona virus pandemic. London rents are now 7.8 per cent up on pre-Covid levels, compared to the UK-wide average of nearly 13 per cent up.

Even so, the London rental growth rate ‘is simply not sustainable’, said Zoopla.

Otherwise, urban areas across England are outpacing rural markets ‘as strong employment growth drives demand in cities’.

New-build rentals around city centres are becoming more appealing to renters looking for smaller homes with lower running costs, said Zoopla.

‘Asking rents for two-bed flats are rising faster in the top 25 per cent of the market, with growth lagging across the bottom 25 per cent of the market (where demand is more price sensitive). For three-bed houses, there is less of a difference, but in many regions, the asking rents in the more affordable segments are rising faster. And as rented family homes become less attainable, demand for two-bed flats continues to climb (with renters looking for better value for money)’.

Zoopla concluded that renting affordability across the country is broadly in line with the long-run average.

But it said there is no real prospect of a significantly improved rental supply in the near term, as private landlords continue to sell off homes and renters stay put for longer.

‘Higher mortgage rates will compound the pressure on demand, making it harder for would-be first-time buyers to stop renting and purchase a home. The imbalance in supply and demand is here to stay, and rents will continue to rise to above-average levels into 2023 across the more affordable markets.

‘There is headroom for some renters to pay more – especially outside of London and the South East – where rental affordability will remain a drag on demand.

‘We expect rental growth to slow over the fourth quarter of 2022 and into 2023 but it’s unlikely to happen quickly’.