Supply and Demand Disparity Fuels Rental Market Boom: Over 20 Applicants for Every Property

The surge in demand is being driven by a continued shortage of rental properties, mainly due to reduced investment by private landlords. Although there has been a 20% increase in available rental units compared to 2023, the number of properties on the market remains 24% below pre-pandemic levels.

Real Estate Investment and Buy-to-Let Sector Struggles Impact Rental Supply

The buy-to-let real estate sector is currently grappling with various challenges, primarily due to a decline in new investments from private landlords. As a result, supply is stretched thin, with an average of 21 applicants competing for every available rental property—more than twice the competition seen before the pandemic. This scarcity has driven a 30% increase in rents over the past three years. Expanding the availability of rental properties is crucial to easing rent inflation, but many landlords are choosing to exit the market instead.

Mortgage rates have risen sharply over the last two years, adding further pressure on landlords. Additionally, tax and regulatory changes dating back to 2016 have contributed to a steady flow of real estate sales, with 12.5% of properties listed for sale on Zoopla in July 2024 being former rentals.

Potential Tax Reforms Threaten to Worsen Rental Supply Crisis

The introduction of the Government's Renters' Rights Bill is already influencing many landlords' decisions on whether to continue renting or to sell their properties. In addition, anticipated tax changes in the autumn budget may lead to a further reduction in the number of rental properties, which could push rents even higher.

While it is too late for landlords to sell their properties before the upcoming budget, any delays in the proposed tax reforms could result in more landlords putting their properties on the market in the near future. This would likely exacerbate the current shortage of rental homes.

Rental Growth Strongest in Affordable Regions Near Large Urban Areas

Although rent increases have slowed in major urban centres like London, growth remains strong in more affordable areas near these cities. Smaller towns and regions adjacent to large metropolitan areas have seen some of the most significant rent hikes. In Scotland, for example, Kilmarnock and Kirkaldy have experienced annual rent growth of 13% and 12%, respectively.

In England, places like Wolverhampton, Oldham, Darlington, and Walsall are seeing similar trends, with rents rising by 10% or more. These regions offer more affordable options for tenants while remaining well-connected to larger cities, making them attractive alternatives for renters priced out of major urban markets.

Real Estate Market Outlook: Supply and Demand Imbalance to Persist into 2025

Even as mortgage rates decline and pandemic-related factors fade, rental demand is expected to remain above average into 2025. The affordability crisis in the housing market, especially in southern England, is making homeownership increasingly unattainable for many, forcing more people to rely on the private rental market. The limited supply of affordable housing options will likely continue to place pressure on the rental sector to meet this growing demand.

Richard Donnell, Zoopla's Executive Director, notes that the affordability challenges of homeownership are key drivers behind the rental inflation. He emphasises that policymakers must focus on increasing the supply of rental homes to relieve price pressures and offer renters more options.