Rental affordability – defined as the proportion of gross earnings needed to cover the average rent – is now at its highest level for a decade at 28.4%, Zoopla’s latest quarterly Rental Market Report reveals. This is compared to an average of 27.2% over the last 10 years and is due to the growth in rents for new lets continuing to outpace UK wage growth.
Faced with the unaffordability of rents and scarcity of supply, renters are being forced to rent smaller homes, move to cheaper areas or share a property with other renters to reduce costs. Data from the Resolution Foundation found private renters have experienced a 16% reduction in floor space per person over the last 20 years.
Despite annual UK rental growth currently at 10.5% compared to 12.1% a year ago, renters can still expect to pay an extra £,1320 annually – or £110 per month. Over the last three years rents for new lets are up by an average of £2,772 per year, compounding cost of living pressures for renters.
Set against increased rental costs, rental supply remains 30% below average for this time of year, despite demand for rented homes still 51% above the five year average. Surprisingly this is 20% lower than demand seen a year ago, and it’s this mis-match of supply and rental demand that remains across all UK regions.
Scotland has overtaken London as the area with the fastest rental growth at 12.7% thanks to the introduction of rent controls in September 2022 which have capped increases in rents for existing tenancies at 3% a year. As properties become vacant landlords can reset the rent to the full market rate which means landlords are seeking to maximise the rent for new tenancies to cover increased costs and allow for the fact that future rent increases will be capped over the life of the tenancy. This has added extra impetus for rental growth in Scotland versus other parts of the UK.
Richard Donnell, executive director at Zoopla, said: “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.”