Spotlight: Prime Rental Markets

Prime Rental Markets
 
Mainstream Rental Market

28 July 2015, by Sophie Chick

Over the past decade, rents in London have seen twice the level of growth as the rest of the UK.

 

Historically our ability to monitor the mainstream private rental market has been shackled by a frustrating lack of data. Thankfully, as the sector grows and its importance increases to a wider group of tenants and investors, this is changing.

Statistically speaking

For example, the “Experimental Index of Private Housing Rental Prices”, now being released by the ONS, tells us that rents in London have seen almost twice the level of growth as across the rest of the country over the past ten years. While rents in London have risen by 33% over that period, they have grown by 17% across the rest of England. Over the past year rents in the capital have risen by 3.2% compared to 1.5% across the remainder of the country.

We also have much better information about what this means in pounds, shillings and pence. Data collected by the Valuation Office Agency puts the median rent for a two-bedroom property in London at £16,800pa, 2.35 times the figure for England as a whole.

It also shows that by this measure all of the 25 most expensive local authorities are boroughs in London, with the median two-bedroom rent in areas such as Newham, Hounslow and Islington being higher than the average of £14,380pa payable in Elmbridge, or the £13,800pa in Windsor & Maidenhead.

This is not to say that issues of rental affordability are confined to London. The median two-bedroom rent is above £1,000pa across each of Brighton and Hove, Oxford, Cambridge, St Albans and Guildford.

FIGURE 6

Mainstream rental growth

 
Figure 6

Source: Savills Research

Political Pressure

These costs reflect the pressure being placed on the private rented sector, which consequently came under the political microscope in the run up to the general election.

In their pre-election campaigning, the Labour party proposed longer term tenancies and controls on rent increases, highlighting the implications of the mismatch between demand and supply in the sector.

While the election result has pushed such proposals into the long grass, the issue of rental affordability is unlikely to disappear from the political agenda, when 56% of the housing costs borne by households under the age of 35 consist of rents paid to private Landlords, a figure which rises to 67% in London.

Calls for buy-to-let investors and first-time buyers to be put on an even footing have already led to a tempering of tax relief on landlords' costs of borrowing, as announced in the July 2015 Budget. Yet, given the underlying backdrop, such measures are unlikely to reverse the growing demand for private rented accommodation, nor are they likely to increase the supply of much-needed, good quality private rented stock that is crucial to meeting this demand.

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