Rental costs seen rising more quickly than house prices over the next 5 years

Author: Rent Guarantor

23/10/2019

The latest housing market survey from the Royal Institution of Chartered Surveyors reports on a number of different elements of the UK’s housing market. When it comes to the rental market, its members are of the view that the imbalance between supply and demand remains very much in place and this is something that will likely push rents higher in coming years.

The monthly RICS housing market survey is closely watched and as it is based on the assessment of surveyors who are actively valuing properties that are on the market. This means they’re aware of current:

  • Market conditions.
  • The view of home buyers.
  • Home sellers’ views.
  • Landlords feelings.
  • Tenants demand.

This insight ensures their insight is relevant and reliable and during September, they collectively identified that rents are on the rise as there are more prospective tenants than there are rental properties available for them.

Rents set to rise by more than house prices

Over the short term – considered to be the next 12 months – the average rate at which rents are expected rise, according to surveyors who responded to the RICS survey, was 2%. However, looking at the longer-term, or over a five-year period, they anticipate rents could increase be an average of 3% per year.

That’s a faster increase than the 2% average over a five-year horizon for UK house prices. It’s also above the current rate of inflation which is 1.7%.

While the survey clearly shows that a lack of rental properties is pushing average UK rents higher, surveyors and estate agents across the UK whose comments are listed in the survey. They include a number of views highlighting that increased taxes for Buy-to-Let investors have played their part in the continued imbalance.

“Shortage of rental stock continues to drive rents ever higher. Own goal by Government over recent legislation,” said Neil Foster, from Foster Maddison Property Consultants.

“The current policies regarding tax and Stamp Duty are deterring new landlords. The recent legislation is causing rents to rise and are causing a lack of new rentals, further pushing up rents as demand exceeds supply,” said Mr. Pennington from Northallerton Auctions.

Survey highlights PRS landlord and investor uncertainty

The latest RICS survey details on the UK’s rental market underscore other news reports and surveys suggesting that private rental sector landlords and property investors are currently less inclined to add to their portfolios. And in some cases, landlords are actively reducing their holdings and selling off some of their properties, or at the very least are planning to do so in the next year.

However, while some PRS landlords are less confident in the profitability of continuing to invest in BTL properties, there is a glimmer of hope for future tenants. A recent report by property management firm Knight Frank shows the number of build-to-rent developments is on the rise.

Across London in the first half of 2018, build-to-rent developments accounted for 28% of all construction starts in the city. That’s up from 21% in 2015.

But it’s not just Londoners who are set to benefit from increased interest in build-to-rent. In Sheffield, home builder Grainger PLC recently unveiled its new development, the first ever build-to-rent project in Sheffield.

“We're delighted to launch our first development in Sheffield,” said Helen Gordon, Chief Executive at Grainger plc. “With the convenience of a professional management team, a range of onsite amenities and super-fast broadband all included within the rent, Brook Place provides hassle-free, good value renting, within easy reach of Sheffield city centre.”

However, it’s likely that the RICS survey respondents will have taken the increased appetite for build-to-rent into account, or at least partly. If build-to-rent proves more popular than expected, it could result in a better outlook for tenants, however, as with many things, right now its very much a case of wait and see.