Summary – Our Thoughts
It’s important to bear in mind that rental market statistics mostly reflect new lets and not the wider market. Few landlords raise rents on their existing tenancies annually to match the current level of rent inflation.
While rising costs are no doubt leading to rent rises, it’s also important to consider that after a number of years in which rent rises have been modest figures have been playing ‘catch up’ too to some extent. In particular, while rents in more expensive areas have reached a peak areas that were once good value for rents have become more attractive to tenants and this has pushed overall rents up.
There are a number of factors that are probably behind fast rising rents at the moment. As well as an increase in landlords’ costs and mortgage interest rates – which has led some to leave the lettings market – these include strong employment levels and wage levels. However, they mostly boil down, as the Zoopla report confirms, to more people needing rented accommodation than there are houses and flats available.
Governments perhaps ought to recognise that many of these developments are down to their policies – which can have unintended consequences. For example, measures which are intended to discourage investors and benefit property buyers, or make things easier for tenants, can ultimately result in higher rents for tenants.
The Zoopla report seems to suggest that unless something drastic happens the supply-demand imbalance will not find an equilibrium any time soon. Therefore although they may not rise quite as much as over the last year rents are likely to keep on rising for some years to come.
At the end of the day, an imbalanced rental market is not really great news for anyone in the market, but especially not tenants. However, there is something of a silver lining for existing landlords as well as new buy-to-let investors. They should be able to look forward to good demand alongside strong rent levels and yields on their investment properties.