Recent Zoopla data showed rental inflation slowed to 3% in January, the lowest level since July 2021.
The news prompted a further wave of commentary focused on the challenges of landlordism, but, for me, it’s more a sign of a market returning to some semblance of normality.
The soaring rental inflation of the past three years was not a sign of a healthy market, it was a symptom of dysfunction. Inflation of 10%-plus is clearly not welcome news for tenants, and not sustainable.
Many tried to blame landlords’ rising mortgage costs for driving inflation, but the fact there are approximately five-and-a-half million rental properties and only two million mortgages drives a horse and cart through that argument.
It simply reflected the huge surge in demand for rental homes in a post-lockdown world and an army of tenants willing and able to pay the asking price. Against a low supply of property, prices rise; basic supply and demand economics.
Available stock was, and still is, below pre-pandemic levels as a result of sitting tenants staying put for longer and the decade-long slowdown in new investment into the sector.
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As the red-hot inflationary environment of the post-mini Budget has eased across the economy, so have rental prices. The 2023 wage surge has slowed and affordability in most markets across the country has hit a ceiling, or is very close to.
There is a long-term correlation between rent and wage inflation, with the former typically lagging the latter, and I would expect that we are seeing normality returning to the sector.
A costly market
What this doesn’t mean, however, is that households that relied on rented property in the past aren’t priced out of the sector today, particularly those on lower incomes. Lower inflation or not, the rental sector has still become too expensive for many prospective tenants.
Local councils recently warned they are facing a crisis in providing emergency accommodation to homeless families, with spending up by nearly 80% in the year to March.
The Institute of Fiscal Studies (IFS), meanwhile, reported the proportion of younger people staying in the family home was up by a third because the traditional route of a rental property is no longer financially viable, let alone purchasing a home.
Let’s not make the rental market inaccessible
Zoopla warned in its latest report that the UK is facing a shortage of rental properties, a message I have been conveying for years. The Renters’ Rights Bill, alongside proposed new minimum energy standards for rented property, could shake out those remaining landlords who hold one or two properties, further constraining supply.
For many of these landlords, enough is enough and they are selling.
This is music to the ears of some of the tenant groups (and I suspect factions of our government), while certain people argue that the property doesn’t simply disappear, it moves into the owner-occupied sector.
Well, it does for those households who can’t afford to, or don’t want to, buy a home.
It reduces choice for the person who may be moving to a new town for work, the key worker who needs to be close to their school or hospital, the divorcee who needs to find a home quickly for their children, the graduate starting their career in an exciting new city, the young couple looking for their first place of their own, or the person from overseas moving to the UK.
Rental inflation returning to more normal levels is great news for tenants who can afford to rent a home. But it doesn’t mean a jot to those that have no prospect of a good-quality rental home as the sector is already beyond their reach.
