The number of homes available to rent right now is nearly 40% below normal levels.
Yet demand for rental properties is surging at 46% above the five-year average.
With so many renters needing properties and so few out there available, the rental market is facing a chronic imbalance between supply and demand.
That, in turn, is pushing up prices on new lets as renters compete to secure properties.
In the last year alone, rents have risen 12.1%, that’s an average of £117 a month, or £1,400 a year.
This means the average single renter is now spending 35% of their income on rent.
That’s the highest proportion of earnings in the last 10 years.
What’s causing the shortage of rental properties?
1: Landlords selling off properties
The private rented sector has a structural supply problem stemming from economic and policy factors.
The stock of homes available for rent has not grown in size since 2016, holding steady at around 5.5m homes.
Over the last 7 years, we’ve seen private landlords selling up and taking advantage of the strong sales market in the face of higher taxes and greater regulation.
This reduction in privately available rented homes has been offset somewhat by corporate investors delivering ‘build-to-rent’ schemes.
But proposed regulations and new rules on renting homes that aren’t at an Energy Efficiency rating of C or above from 2025 are likely to result in more private landlords selling up, especially if they own homes that are expensive to manage and retrofit.
And this further loss of privately rented homes is likely to offset the positive impact of new investment in the build-to-rent sector.
2: Rising mortgage rates putting off would-be first-time buyers - and landlords
Rising mortgage rates are exacerbating demand levels, as would-be first-time buyers wait for stability to return to the housing market before climbing onto the ladder.
Similarly, investment landlords are also being put-off from buying properties while mortgage rates remain high.
The demand for rented homes is only going to rise in the medium term, so it's important that policymakers encourage good landlords of all types and sizes to stay in the market and deliver much-needed supply.
Only by increasing investment in the private rented sector can we ease the affordability pressures on renters in the medium term and make for a more sustainable rental market.
How are renters coping with the shortage of homes?
Renters are increasingly making compromises to cope with rising rents and the shortage of homes available.
1: More renters are starting to share properties in a bid to lower costs
Recent research from the Resolution Foundation 2 found that there has been a steady increase in sharing, measured by the space per private renter, which has decreased by 16% over the last two decades.
2: Others are choosing to stay with their families for longer
Data from the Office for National Statistics shows a continued increase in the number of young adults aged 20-34 years staying at home (3.6m in 2021), rather than incurring rental payments to live independently.
3: And some are choosing to move to smaller properties
Our last report highlighted how renters are seeking smaller homes with an increase in demand for 1- and 2-bed flats and a reduction in the demand for houses.
Our latest data shows this trend is continuing with an acceleration in demand for 1-bed flats, which now account for 32% of rental enquiries across the UK.
Supply is starting to improve
There has been a modest increase in rental supply in recent weeks as the sales market weakens.
The average number of homes for rent per estate agency branch is now 10, up from a low of 7 at the end of September.
And we do expect to see a further modest improvement in rental supply in the coming months.
Landlords looking to sell homes may now continue to rent them out while uncertainty in the wider sales market persists.
However, the fact that renters are choosing not to move rather than face higher rents is compounding the supply issue for the market.
When will there be more properties available to rent?
Unfortunately, we’re not expecting to see any major improvement in supply over the next 12 months.
Zoopla's Executive Director Richard Donnell says: “Increasing investment in new rental supply from multiple sources is the main route to reducing rental growth and making for a more sustainable private rented sector.”
It is important that policymakers encourage good landlords of all types and sizes to stay in the market and deliver much-needed supply.
Only by increasing investment in the private rented sector can we ease the affordability pressures on renters in the medium term and make for a more sustainable rental market.