Average rent has fallen for the first time since 2010. That’s good news for tenants: but will it last?
As Benjamin Franklin famously said,
“In this world nothing can be certain, except death and taxes.”
…And increases in your rent, Ben.
As more and more of us live in rented property, we could always be certain of one thing: our rent was only going to increase.
Until now that is: estate agents Countrywide are reporting that rents for newly-let properties have fallen for the first time since 2010. This is due to a big increase in the availability of rented properties – mainly in London – with many landlords having rushed to buy last year before the 3% stamp duty surcharge came into effect. For once, the law of supply and demand has worked in favour of tenants.
The average new tenancy in England, Scotland and Wales fell by 0.6% in the year to February 2017, to £921 per month. In London, the figure fell 5% to £1,246 per month and in the South East rents were down nearly 3% to £1,152.
But with the average fall across the country only 0.6%, this clearly means that rents in the rest of the UK continued to increase, a trend with Countrywide’s research director, Johnny Morris, expects to continue: “Rents are growing in most of the country,” he said,
“But falls in London and the South East are dragging down the national growth rate. Early signs point towards 2017 being a rare year when rents rise faster in the north than in the south.”
Where are rents increasing?
Countrywide’s report stated that across the whole of Britain there had been a 5% increase in the number of people looking to rent property: the number of would-be renters had only fallen in London and the South East. The estate agents reported that demand had been especially strong in the East of England, the East Midlands and the North West.
The good news was that there were 10% more properties available to rent, but Countrywide does not expect this ‘over supply’ to last, with average rents across the whole of the UK returning to their long-term trend of only going in one direction.
What about the future?
We have written previously about the need for more housing in the UK – and the real key is to have more affordable housing. All the long-term indications are that the demand for rental properties is only going to increase, with more and more of us living alone. Government figures predict that the number of people waking up to a lonely bowl of cornflakes will increase by a quarter over the next 25 years, with more than 1.7m more people living alone by 2039. The biggest increase – almost inevitably – will come in the South. This increase will principally be driven by more pensioners living alone, as the average size of a household is projected to fall from 2.35 (in 2014) to 2.21 by 2039.
Bad news for young people
Meanwhile, there is also gloomy news for younger people, with the Resolution Foundation reporting that 9 out of 10 people under the age of 35 on “modest incomes” will be “frozen out of home ownership within a decade.” The Foundation warned that many of today’s 18-34-year-olds faced being permanent renters, as home ownership increasingly became the preserve of “the well-off and the elderly.”
The Office for National Statistics (ONS) reported that as recently as 1991 65% of 25 to 34-year-olds who were ‘household heads’ were buying their own home. By 2012 it had fallen to 45% and the number of first-time buyers able to afford a house continues to decline.
The ONS research indicates that the group most likely to own a home are now people aged 65-74, with nearly 80% living in privately-owned homes. Meanwhile, the number of young people renting in the private sector doubled between 1980 and 2012.
So what’s the answer?
We have a Conservative Government, and owning your own home – from Margaret Thatcher’s sale of council houses to David Cameron’s ‘Help to Buy’ – has always been a central plank of Tory policy. Outwardly, they remain committed to this view: the last Conservative manifesto said, “Everyone who works hard should be able to own a home of their own.”
However, the Government has to address the problem of those renting property: after all, as a cynic might point out, the estimated 4.3m tenants in the private rental market also have votes.
The man tasked with sorting out the problem is Housing Minister Gavin Barwell, the MP for Croydon Central, and someone who does seem to acknowledge the need for a ‘change of tone’ on housing policy.
“Whether you are trying to buy or you are trying to rent, housing in this country has become less and less affordable,” he said, “Because for 30 or 40 years governments have not built enough homes.”
A possible solution has appeared in a Government White Paper, aimed at encouraging more investment in building homes for affordable rent, with more encouragement for local councils to be involved. ‘Affordable rent’ is defined as rent which is 20% below the market rate.
This comes on top of the previous announcement that letting agents would be banned from charging fees to potential tenants – although it is clearly possible that the fees have in many cases simply been re-packaged as higher rents.
For now, the number of affordable homes – either to buy or to rent – remains low: so low that even Gavin Barwell describes it as “embarrassing.” Hopefully, the Government’s new five-year programme of house-building will put that right. They are committed to building one million new homes by the year 2020 despite already being ‘behind schedule.’ How they are going to do this remains difficult to see, given that there is a firm commitment “not to take huge swathes out of the green belt.”
Welcome as it is, the fall in rents in London and the South East looks like it is only a temporary respite. Those falls may have dragged down the statistics for the country as a whole, but the simple fact is that for most of us rental prices have continued to rise – with London and the South East looking set to re-join the national trend in the very near future.