The residential rental market has been running hot for two years, with rental inflation running well ahead of earnings growth, according to a new report by Zoopla.
However, the report found that rental inflation has slowed slightly to 11.1%, down from a high of 12.3% in mid-2022.
The report suggests that the strong labour market and record immigration drove demand in 2022, and although demand for rental properties is expected to remain above average in 2023, it is expected to be lower than in 2022.
“The demand for renting was incredibly strong in 2022 helping push rents up by 11%. Rents will continue to rise over 2023 but at a slower rate as demand moderates and affordability pressures start to bite harder on renters,” said Richard Donnell, executive director of Zoopla.
The supply of private rented homes has grown just 1% since 2016, and higher mortgage rates have weakened the economics of investing for landlords, impacting new investment in rental supply.
The report suggests that landlords “searching for yield” to offset rising costs will push some to let into different sectors of the private rental market.
The growth in overall rental supply is set to remain limited in 2023, with rental inflation for new lets expected to slow to 4-5% by the year end.
The slowdown could be rapid in inner London and other city centres, where landlords have been hit hardest by increased costs and regulations.
Reaction
Richard Rowntree, Paragon Bank managing director of mortgages:
“Tenant demand shows no sign of abating and remains at 51% above the five-year average. With Zoopla’s analysis showing only a 1% increase in private rental housing supply over the past seven years, the chronic supply/demand imbalance we see today will only worsen unless the stock of rented homes increases.
“This is clearly something the current Government, or the next, will need to consider as it develops housing strategy; landlords are an important element of the housing mix and should be incentivised to maintain or grow their property portfolios through a fair and proportionate regulatory and fiscal regime.”
