Zoopla has confirmed that UK cities saw record high rent increases in 2022.
The Average rent has increased from £120 in the past year with London, Manchester and Glasgow seeing the biggest hike. Obviously, a lot of this relates to the country coming out of Covid and people being able to take more properties. However, with the current cost of living crisis and the recession most people are deciding to stay where they are rather than moving. With less property available on the market this is pushing up rental prices as well. It is well known that there is less than 50% on the market than normal but it is not necessarily in all areas. There is also a possibility of people now selling property and looking to go into rented accommodation which is pushing up rents as well.
Rents charged ahead in 2022.
The rate of rent increases in 2022 were at the highest level for the last decade. In December, the average rent was £1118.00 which is 11.5% or £120.00 higher than a year ago.
The pace of rents are increasing but have slowed since the peak of July 2022 when it started to grow by 12.1%. The growth in rents for new lets reflected the experience of a quarter of all renters who move each year.
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People who then stay in their own property and don’t decide to move the rental increases have become slower. Data from the office of national statistics confirm that on all private rented homes there has been an average of 4.2%.
What is causing the rents to increase?
There is just not one answer for this question. We already outlined above various different factors but the pace of rentals can rise on national as well as local factors. In 2022 there was a chronic imbalance between the supply of homes to rent and the level of demand from renters. This encouraged competition from renters and gave rights to sizable rent hikes. High inflation, high employment of storage and strong wage growth in recent years are additional drivers of the rental growth, especially in the urban areas. However, it has been noted in the last quarter that this has started to slow down and in fact come back. It indicates that the cost of living crisis is now starting to bite.
Rents in London grew faster than anywhere else in the country.
London continues to recover from the pandemic. The capital is the region with the highest annual rental growth in the UK. In the past 12 months the average rent for a new let increased by 16.1% adding another £270.00 monthly. However, it needs to be tempered against the fact that the rental figures in the Capital came down dramatically during Covid. So growth is always expected to be higher.
There are high levels of demands in London and this is behind a record high rental growth. Rents went up by 17.4% on average in contrast to 3.3% in outer London.
Popularity amongst professionals and students, regeneration projects delivering more newly builds, homes to rent and new connections with central London drive rental growth in this area. For instance in Havering further East saw the lowest level of rental growth in London as renters preferences changed in favour of the city. This has been a reverse of what it was during Covid. Rents in this area increased by only 9.2% last year adding £120.00 to their average rent. The renters in the city saw the highest increases.
The London high rents are not exclusive just to the Capital.
Manchester and some Scottish cities have also been affected by record high increases in the prices of new lets.
Manchester has now got an average rent of £977.00 per month, up from £847.00 in December 2021. Rents in inner Manchester, Trafford and Salford are growing at a faster rate than the North of England. In all of these areas the average rent now is £140.00 higher than a year ago.
Zoopla data shows very high rental growth in Scottish cities of Glasgow, Edinburgh and Dundee. The above average level of price increase for new lets is driven by a growing gap between demand from renters and the supply of homes in the city.
What would the outlook be for the rental market in 2023?
Zoopla believes that they expect rents to continue to increase at a much slower rate. Supply will remain tight due to lower levels of new investments by landlords. A strong labour market and higher borrowing costs for home buyers will continue.
Fixing supply issues will take a long time and a larger renting budget is not an answer for everyone. Renters in the market for rental homes need to prepare for a greater set of compromises. Searching for smaller properties, alternative locations or modest futures of common tactic.
However, we believe that the increase will not be as high as people believe. With the cost of living crisis starting to bite on many peoples budgets on a regular basis the steep rental growth is not sustainable in the longer term. The affordability pressures will start to limit up pressure on rents. We would expect rental growth to slow down in 2023 and potentially stagnate at the end of the year. Obviously, local factors have to be taken into account with all markets.