Rents are expected to outpace wage growth, despite rents already rising at the fastest pace in history in the UK following the coronavirus pandemic and cost of living crisis.
The Resolution Foundation expects further pressure on millions of households, with average rents expected to rise by 13% over the next three years as high growth in the current private rental market spills over into existing rental contracts. He said there was a possibility of an increase.
The think tank predicts that average rents will increase by 4.2% in each year through 2027, compared with the Office for Budget Responsibility’s forecast of a 7.5% increase in the average worker’s income over the same period (an average of 2.4% per year). Said to be much faster than. .
Rishi Sunak’s government last month watered down reforms to strengthen protections for renters against no-fault evictions, with the Prime Minister and Housing Secretary Michael Gove bowing to Tory MPs who had lobbied for landlord interests. This led to accusations that he had done so.
In a report titled “Through the Roof,” the Resolution Foundation says landlords across the country are already experiencing an unusually high rise in rent levels for new tenants, with nearly five-tenths of 1 has also increased. The report said that in the past, due to a large increase in private rentals, this surge affected many more households, almost doubling from 11% of all households in the mid-1990s to 20%. This includes a rapid increase in the number of families living in private rental housing, led by people aged 30 to 49, meaning that renting is no longer just for those in their 20s.
However, the report notes that record rental cost growth has begun to slow after the “recovery from the pandemic”, with market rents for new tenants increasing from annual cost growth of 10.4% in June 2023 to March 2024. By now, the rate had slowed to 7.5%. .
But the think tank warned that it could still take years for this rapid growth to trickle down to the entire private rental sector.
New landlords already have higher monthly expenses, but existing tenants whose tenancies are coming to an end or who are forced to accept price increases within their tenancy face significant rent increases in the future. The company said.
The report found that the main factor driving up rental costs is the rebound from coronavirus lockdowns, which halted evictions and foreclosures and caused rents to plummet amid heightened economic uncertainty. . Recently, he said, rising wages have also pushed up rents for new tenants.
He said there had been “scary stories” about a mass exodus of landlords from the private rental sector due to rising interest rates and tighter regulation. But it dismissed this as having a limited impact, highlighting Bank of England research showing the sector had contracted by just 1% since mid-2019.
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The think tank said that while rents tend to track wage levels in the long run, they have fallen to record lows relative to incomes amid the disruption caused by the pandemic. Although it has risen by early 2022, it remains around 5% lower, indicating that it will need to continue rising by 13% over the next three years to bring UK rental yields back to their long-term trend.
Carla Paciti, senior economist at the Resolution Foundation, said: “With more families renting privately and more often renting for longer periods of time, these rising rents are a bigger problem for the UK, and policy makers need to We need bolder solutions.”
“Short-term solutions include regular increases in local housing benefits to support poor families, but the ultimate long-term solution is to simply build more homes. .”
A government spokesperson said it was supporting households by helping with bills during the cost of living crisis. “Our Rental Housing (Reform) Bill will empower people to feel safer in their homes and fight poor practices. Through our long-term plan for housing, we will deliver 115% to our affordable housing program. We are investing £100 million and will be building one million homes this council.”
