The UK's property market is facing a significant challenge as the availability of homes for rent has plummeted to its lowest level in five years, exacerbating the difficulties tenants face in finding affordable accommodation.
This alarming trend was highlighted in a recent
analysis, which revealed that in 2023, only 261,542 private rental homes were
available per month in the UK, marking a steep decline from the 379,459 monthly
average of rental homes available in 2020—a drop of 31%, underscoring a
worrying trend that has been developing over recent years.
This scarcity of rental properties is occurring against a backdrop of
increasing mortgage costs for landlords, which, in turn, places additional
pressure on the rental market.
Higher interest rates, coupled with a high demand
for rental properties, have led to significant increases in rental prices (rising
from £1,343 pcm in 2020 to £1,739 pcm in 2023 – an increase of 29%), making it
increasingly difficult for tenants to find affordable housing.
The combination of reduced availability and
escalating costs creates a challenging environment for renters, finding fewer
properties available at higher rents.
The difficulties tenants face are further
compounded by the financial pressures on mortgaged landlords, who have seen the
affordability of mortgages decline sharply. This has led to a re-evaluation of their
business models by some landlords, with a resultant divestment from rental
property portfolios in some cases. The impact of this on the market has been
profound, with average buy-to-let mortgage rates experiencing a sharp increase,
further exacerbating the challenges landlords and tenants face.
The UK rental market's dynamics have shifted significantly,
with rents rising by 29% as available rental stock dwindled
by 31% since 2020.
The Bank of England has highlighted the potential
repercussions of this situation in its financial stability report in the summer
of 2023, noting that many landlords are likely to seek a raise in rents to
offset their higher costs as they come off their fixed-rate mortgages, thereby
exacerbating the difficulties for tenants, particularly those with lower
incomes and lower savings.
The supply crunch in the rental market has led to
increased competition among prospective tenants, with many properties being let
almost immediately to quality tenants. This competition drives rents upwards,
making it even more challenging for new tenants to find affordable housing.
Additionally, the reluctance of existing tenants to move, fearing higher rents
elsewhere, contributes to the shortage of available properties, as fewer
tenancies are ending and coming back onto the market.
This situation is particularly acute at the lower
end of the price spectrum, where the availability of homes to rent for less
than £1,000 a month has significantly declined, making it even more challenging
for those on tighter budgets to find suitable housing.
740,027 sub £1,000 pcm UK rental properties came onto the market in
2020; this dropped to 464,774 in 2023, a drop of 37.2%.
In contrast, the market for premium properties
(over £2,000 pcm) has seen an increase in availability of 52.6% (from 203,502 coming
on the rental market in 2020 to 310,516 in 2023), highlighting the stark
disparities within the rental market.
The implications of this trend are far-reaching,
affecting not only those currently looking to rent but also the broader housing
market and the economy.
How is this an opportunity for Docklands landlords?
The
current property market could present a notable opportunity for Docklands
landlords. To do that, we must look at the background statistics and numbers
for the Docklands area.
These
are the average monthly stock levels of private rental homes in the Docklands
area (E14) …
·
2019
– 2,899 rental properties per month in the Docklands area
·
2020
– 4,948 rental properties per month in the Docklands area
·
2021
– 4,841 rental properties per month in the Docklands area
·
2022
– 3,401 rental properties per month in the Docklands area
·
2023
– 3,458 rental properties per month in the Docklands area
The
average rent in the Docklands area in 2020 was £1,814 per calendar month; in
2023, it was £2,624 per calendar month.
Docklands rents have risen by 45%, as available rental
stock dwindled by 30% since 2020.
The
escalation of rental prices signifies a robust income stream for Docklands property
investors. This is particularly advantageous in a market where high demand
ensures properties are let swiftly, often to quality tenants willing to pay a
premium for scarce housing options. For Docklands landlords, this means not
only an immediate increase in rental income but also the prospect of sustained
long-term profitability as market dynamics push Docklands rents even higher.
Furthermore,
the challenging mortgage landscape, with rising buy-to-let mortgage rates with
high percentage mortgages, has meant more landlords leaving the market, thereby
reducing competition and potentially increasing the demand for existing Docklands
rental properties even further.
This
unique set of circumstances presents an opportune moment for current and
prospective landlords to capitalise on their Docklands property investments,
leveraging the tight supply to secure higher rental yields and enhance the
attractiveness of their property portfolios.
What about Docklands
tenants?
As the UK grapples with this challenging rental
market landscape, a multifaceted approach is needed to address the underlying
issues. This includes considering the impact of mortgage costs on landlords,
the affordability of rents for tenants, and the overall availability of rental
properties.
The
Government need to build more homes. Yet excluding land, the building costs in the
UK start from £163 per square foot. A 3-bed semi is a minimum of 1000 ft.². The
most conservative estimate shows that Britain is approximately 2 million
households short now, meaning the bill for those additional 2 million homes
would be £326bn (excluding the land). For context, the NHS costs £181bn a year!
The
Government currently spends £17.35bn a year on housing, which would need to
increase to £49bn a year for the next ten years to pay for those 2 million
homes. To give you an idea of what that would cost taxpayers ...
Income tax would need
to rise by 5.81 pence in the pound
to pay for those
additional 2 million homes!
That is the equivalent of an extra £991 per year
for every taxpayer for the next ten years - not a vote winner! Yet without
significant Government intervention and strategic planning, the difficulties
tenants face in finding affordable homes will likely persist, with potential
long-term implications for the housing market and the broader economy.
Meanwhile, British landlords must pick up the
pieces and continue to buy properties. Unfortunately, it is the nature of the
game that with limited supply and increasing demand, prices (i.e. rents) go up.
My heart goes out to Docklands tenants having to pay these increased rents, but
the market is the market, and we cannot control that. It has been proved beyond
doubt, in Scotland and around the world, that rent controls do more harm than
good, so I hope that the Government grasps the nettle and finally does
something to sort our housing issues once and for all in the medium to long term.
Please do give me your thoughts on the matter.
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