Rental costs are now consuming 28.4% of average earnings, marking the worst affordability levels seen in a decade. This concerning revelation emerges from Zoopla’s recent quarterly Rental Market Report. In comparison, over the past ten years, the proportion of earnings spent on rent averaged at 27.2%. The primary cause? Rent prices for new listings continue to surge ahead of wage growth in the UK.
To cope with rising rents and the dwindling supply of rental properties, renters are resorting to smaller living spaces, relocating to more affordable regions, or sharing accommodations. Supporting this trend, the Resolution Foundation’s data indicates a significant 16% decline in individual living space for private renters in the past two decades.
Although the annual growth in UK rental prices has slowed slightly to 10.5%, down from 12.1% the previous year, the financial burden on renters remains hefty. They are now shelling out an additional £1,320 each year, translating to £110 every month. The cumulative increase over three years has piled on an added annual expense of £2,772, intensifying the cost-of-living squeeze.
This price surge is exacerbated by a notable 30% shortfall in the rental supply for this season, even as the demand for rental homes overshadows the five-year average by an impressive 51%. This demand, however, has dropped by 20% from last year’s figures. This persistent imbalance between supply and demand is evident across all UK regions.
Remarkably, Scotland has leapfrogged over London to claim the spot for the highest rental growth, recording a 12.7% rise. The inception of rent controls in September 2022 has played a crucial role in this shift. These controls have pegged the annual rise in rents for ongoing tenancies to 3%. Consequently, when properties become available, landlords are capitalising on the opportunity to adjust rents to current market rates. The anticipation of capped future rent hikes for ongoing tenancies has fueled this scramble to maximise rents for new listings, driving Scotland’s rental growth past other UK regions.
Sharing insights on this trend, Richard Donnell, Executive Director at Zoopla, stated, “The rented sector is stuck in a seemingly endless cycle of low supply and strong demand which has kept rental growth in double digits for 18 months in a row. Scotland is the hottest rental market with rents up almost 13% over the last year as landlords adapt to new rent controls over the last year.
Rents continue to rise faster than earnings, worsening rental affordability for renters looking to move. Rents are set to rise 9% over 2023 with the pace of rental growth be shaped more by the affordability of renting, and how renters adapt to higher rents, than major shifts in supply or demand. More renters looking to share accommodation could well support rental growth into 2024 with no end in sight for the shortage of homes for rent”.