What is driving the rental market boom?

The national news is obsessed with the UK property market!
There is no doubt it is a favourite headliner for most media outlets, and let’s face it, the UK public is obsessed with it too! However, it is specifically the residential rental sector that has been under the media microscope over the last 18 months because it has been booming – it literally burst back into life post-pandemic and hasn’t stopped.

Over the last 20 years, demand for rental homes has seen strong, steady growth. The number of households privately renting has more than doubled over the past two decades, according to the 2021 Census, to just over 5 million. However, the current surge in demand started in 2021 with no signs of slowing, hence the intense media interest.

Much media reporting is often akin to storytelling with a determination to have a “goodie” and a “badie”, and as such, there have been many press headlines with opposing views on who are the winners and losers of the current boom, most commonly with landlords in one corner and tenants in the other. Of course, the truth is seldom this polarised, and in reality, these stakeholders have both experienced advantages and disadvantages in the current climate based on individual circumstances. However, rather than delve into this, I want to examine what is causing this current boom and how long it might last.

1. Firstly, the lack of decent, affordable social homes has pushed people into private renting, contributing to the long-term growth in demand. Added to this is the more recent house price inflation making it harder for first-time buyers and those on lower incomes to transition from renting to home ownership.
Of course, the sudden increases in the cost of living has further exasperated this.

2. Even though owning a property outright is the goal for 80% of people, renting is the best option for many ranging from students to digital nomads to those with adverse credit and single living.

Renting is also a relatively short-term commitment for tenants, providing the flexibility to change locations, increase/decrease property size, and have a garden/no garden as circumstances change or evolve.

3. Another key driver for the recent demand is the strength of the jobs market (over 1 million vacancies, according to the latest ONS data). In 2021 the UK government conducted a major shakeup of visa rules to attract skilled workers and more students from abroad. The UK has seen record-high immigration, further boosted by support schemes for Ukraine and a specific visa scheme for British citizens looking to leave Hong Kong.

4. While tenant demand has increased, the number of privately rented homes remains largely static. In 2021, there were 5.5m private rented homes in Great Britain – only slightly more than the 5.4m total in 2016. This demand has enabled rental prices to increase in line with the additional cost of mortgages for landlords, which, in turn, has increased competition amongst tenants seeking rental homes.

(Graph supplied by property portal Zoopla)

The future outlook

While the availability of privately rented homes remains fairly static, ongoing completions of Build to Rent schemes in the corporate sector will add supply in the mid to upper part of the market, which will assist with the recent imbalance between demand and supply with rental properties. Some extra supply, combined with the increase in the cost of living, is expected to see the pace of rent increases slow over the next few years but will still remain above the 5-year growth average.

The long-term growth fundamentals, however, remain unchanged with less social housing, more challenging criteria to obtain a mortgage and a greater desire for more flexible living in the short to medium term.  

What does this mean for No Letting Go Franchisees into the future

No Letting Go is a specialist inventory management supplier to the lettings market, servicing property managers, social housing, landlords and institutional investors. We have experienced record levels of growth in sales over the last two years, and the outlook remains strong for our network of franchisees.

It is unlikely the dynamics driving the current boom for rental homes will recede in the coming years. 

Although we do anticipate the pace of rental growth will slow in some locations to more sustainable levels in the face of cost-of-living increases and affordability.

This represents a great economic forecast for anyone considering buying a franchise in the residential rental sector.

Justine Tomlinson
Head of Operations No Letting Go