Navigating Rental Imbalance: Savills' 2024-28 Forecast Insights
Image credits: Towfiqu barbhuiya / Unsplash
The UK's private rented sector has been a rollercoaster ride in 2023. With rents soaring by nearly 7% in the first nine months, the total growth since the pandemic has reached a staggering 27%. The Renters Reform Bill is inching its way through parliament, and the rising cost of debt is eating into the profits of many mortgaged landlords.
The keyword for this year? Imbalance. The demand for rental properties has consistently outstripped supply since the national lockdowns ended in mid-2021. With interest rates on the rise, landlords are selling their properties, further reducing the number of homes available to rent. This has led to a competitive rental market, with tenants having to bid rents upwards to secure a tenancy.
The Royal Institution of Chartered Surveyors (RICS) survey suggests that this rental growth will continue to be robust throughout 2023. Savills forecasts a 9.5% growth for the year, lower than 2022, but still higher than any other recorded year.
Looking ahead, the rental supply is unlikely to increase significantly in the next few years. High interest rates will continue to deter landlords, and it's anticipated that more landlords will exit the sector. This imbalance of demand over supply is expected to fuel strong rental growth in 2024, estimated at around 6%.
However, this growth is pushing the limits of rental affordability. The average private rental sector (PRS) household is now spending 35.3% of their income on rent, up from 33% in 2021/22. This is the highest proportion in the last 18 years.
London, where rents take up a much higher proportion of incomes, is already feeling the impact of this rental affordability ceiling. Rents in the capital have grown by 31% in the last two years, but month on month rental growth has fallen from an average of 1.2% in 2022 to 0.6% in 2023.
As interest rates are expected to fall from mid-2024, landlords may gradually return to the rental sector. However, a significant increase in stock is likely to be delayed until 2026 and beyond when interest rates have fallen more substantially.
The struggles of individual private landlords suggest that institutional landlords and the Build to Rent sector will play an increasingly important role in providing high-quality rented accommodation. The PRS offers a secure long-term income stream, which is likely to rise with inflation and provides a much-needed source of new housing. However, the growth of the Build to Rent sector will depend on how easily schemes can secure funding and planning consent in a challenging environment.
Link to main article: Savills UK | Mainstream Rental Forecasts
