The Evolving Landscape of the Rental Market: Challenges for Tenants in 2024

Image credits: Jaye Haych / Unsplash

In recent years, the rental market has seen significant shifts that have impacted both tenants and landlords in profound ways. Historically, many tenants benefited from minimal or below-inflation rent increases, with landlords accepting a modest disparity between market rates and the rents paid by long-term tenants. However, the dynamics have changed dramatically over the past two years, driven by a surge in open market rental growth, as highlighted by recent research from Hamptons.

As the gap between market rates and existing tenant rents widened, the landscape began to shift. In 2024, 88% of tenants experienced rent increases upon contract renewal, a stark contrast to 61% of landlords who raised rents for new tenants. This trend reflects the growing necessity for rents on renewed contracts to catch up with the market rates.

In percentage terms, tenants renewing their contracts are now facing larger increases compared to those moving into new homes. Although rental growth for newly let homes peaked at 12.0% in August 2023 and has since slowed to 6.4% by April 2024, the average rent for renewed contracts has risen by 8.3%. Despite these increases, renewing tenants are still paying an average of £1,151 per month—13.4% or £178 less than those signing new contracts, making staying put a financially appealing option.

This expanding gap between existing and new tenancy rents has significant implications. In April 2018, the difference was a mere 1.1% (or £8 per month). Since then, market rents have soared by 38%, while rents for existing tenancies have increased by 21%. This disparity discourages tenant mobility, with fewer renters moving homes unless absolutely necessary.

The English Housing Survey revealed a 15% drop in tenant moves for 2022/23 compared to the pre-pandemic five-year average (1.01 million vs. 1.19 million). Recent analyses indicate that 2023/24 will see an even greater decline, with moves projected to fall 17% below the pre-pandemic average, dipping below one million.

The rapid increase in open market rents has further implications for those considering a move. The cost of renting a home has escalated to the point where tenants are effectively losing a bedroom's worth of value. For instance, the rent for an average one-bedroom apartment now matches what a two-bedroom apartment cost 20 months ago. Similarly, today's two-bedroom rents equate to the three-bedroom rents from the same period.

This accelerated rental growth peaked last year, reducing the time it took for rent increases to equal the cost of an extra bedroom to just 14 months—the shortest duration since the Hamptons lettings index began. Pre-COVID, this period typically ranged between 50 and 70 months, with rental growth rates of 2% to 3%.

Looking ahead, the annual pace of rental growth for newly let homes in Great Britain has shown signs of stabilizing. Growth slowed from 6.7% in March to 6.4% in April, with a slight monthly increase of 0.8%—the largest this year. This trend suggests that while rental growth may not decelerate significantly, it is likely to stabilize around the 6% mark, substantially higher than the pre-COVID average of 2.5%.

However, the gap between rents paid by sitting tenants and new tenants may persist if open market rental growth resumes its upward trajectory. This ongoing disparity underscores the complexities facing tenants in the current rental market, where staying put offers financial benefits, but moving could mean sacrificing space or incurring higher costs.

The rental market is undergoing a significant transformation, driven by rapid increases in market rents and a widening gap between what new and existing tenants pay. Tenants renewing their contracts face higher rent increases as their rents begin to catch up with market rates. Despite this, renewing remains a more affordable option compared to moving, which often means paying more for less space. As rental growth stabilizes at a higher rate, the market presents both challenges and strategic decisions for tenants and landlords alike.