The Office for National Statistics (ONS) has issued a stark warning for UK renters: the cost of renting a private property is escalating at unprecedented rates. For the first time since record-keeping began in 2006, renters are experiencing the brunt of these increases. This trend is particularly concerning given the UK’s substantial private tenant population, which includes approximately 4.6 million households.
Wales Leads in Rising Costs
An analysis of the data reveals a varied market across the UK. Renters in Wales are facing the most severe increases, with a whopping 7.3% hike. Scotland follows closely at 6.2%, and England isn’t far behind with a 6.1% rise. Within England, London stands out with the highest annual increase at 6.9%, while the north-east shows a relatively modest increase of 4.7%. Northern Ireland, with data available only up to September 2023, shows a staggering annual increase of 9.1%.
Inflation and House Prices
Amidst these rental hikes, the overall economic landscape presents a mixed picture. General inflation, as measured by the consumer prices index, is on a downward trend, falling from 4.6% to 3.9% in November. Simultaneously, house prices have seen a decrease of 1.2% over the year to October. Aimee North, the ONS head of housing market indices, highlights this contrast, noting the fall in housing prices juxtaposed with the relentless surge in rental prices.
Factors Driving Rental Increases
Barret Kupelian, chief economist at PwC UK, points to the labour market as a key driver of these rental increases. Higher earnings have led to increased demand, while the supply side lags behind. Kupelian predicts a moderation in rental growth for 2024 as the labour market and earnings begin to cool, but still expects rental growth to remain above historic rates for most of the next year.
Bank of England’s Perspective on Interest Rates
The Bank of England has also weighed in, linking the 14 interest rate hikes since December 2021 to the rising rental costs. In a post on their blog, Bank Underground, analysts Daniel Albuquerque and Jamie Lenney suggest that while interest rate rises may initially pressure the rental market, leading to temporary increases in rental yields, the long-term effect should be a decrease in rental prices. They argue that tenant demand might rise initially, and landlord supply could be dampened by rising mortgage costs and the slow adjustment of house prices. However, they anticipate that, over time, the housing market will adjust, ultimately leading to a decline in rental prices.