LONDON PROPERTY RENTAL MARKET REPORT
Kate Faulkner OBE
London Property Rental Market Report
Over the last few years, there have been many headlines about rents rising, especially when they hit double-digit increases. However, I don’t think this is being properly put into context or the real reason for the increased rents explained
I don’t think it’s been explained properly because, in the main, it’s been reported and assumed that rents have risen because landlords are raising them Although we haven’t seen rent controls in England and Wales yet, the Renters Rights Bill is introducing legislation restricting the rise in rents.
So I thought it would be useful to explain why I believe rents have risen and why I think that they will continue to rise, especially after the Renters Rights Bill comes in They key stats I’ve used are from the Office of National Statistics which last year produced a whole new set of data analysis which gives us information on rents going back to 2015 – not just by region, but by Local Authority and by number of bedrooms, which is amazing data that few people are aware it exists!
What’s happened to wages and rental inflation in London?
Although not quite up to date, this chart clearly shows that incomes since 2015 have been rising higher than rents – as mentioned above, this data is from the government’s own Office of National Statistics:-
https://wwwons govuk/peoplepopulationandcommunity/housing/bulletins/privaterentalafford abilityengland/2023
And not only have incomes risen ‘on average’ more than rents, rents have actually increased less than general inflation since 2015. Perhaps surprisingly, in London, what the next chart shows is that the average percentage of income spent on rents has been around the 40%
mark as far back as 2012. In the rest of the UK, most tenants spend around 30% of their wages on rents Expenditure on rents in London dropped to 36% during the pandemic and has only risen slightly since 2023
So for me, these charts prove the general view that wages dictate what happens to rent more than landlords and that wages rises have been the main cause of rent rises. Overtime, to date, it is also true that because wages haven’t kept up with general inflation overtime, neither have rents, disproving the rhetoric that ‘rents are sky rocketing’ and indeed that they are ‘extortionate’!
Perhaps surprising still, although on average tenants spend 40% of their earnings on rent, there are some London boroughs where it costs less to rent than the ‘accepted’ 30% of pay including:-
Sutton
Bexley
Bromley
Havering
Hillingdon
Croydon
What’s happening to supply of properties to rent
It isn’t just wages that influence rents and we saw that during the pandemic As demand fell and supply increased – partly due to those offering short lets adding this stock back into the PRS, rents fell and took a little time to recover. Since the pandemic, the population of typical renters has increased while properties available to let have fallen in London, especially those considered to be ‘affordable homes.
A recent study from Savills and the London School of Economics shows that over the last few years “RentallistingshavefallenacrossLondon Across1-4bedpropertiestheoverall reductionis41percentdownonthe2017average Thisreductionintheavailabilityof privaterentalaccommodationishigherinLondon,comparedtoafallof33percent nationally.Thenumberof1-3bedpropertieslistedforrentinbothinnerandouterLondon wasdownbyaround36percentsincethepandemic(comparingJanuary-March2023tothe January-Marchaverageacross2017-19).Listingsforfour-bedroompropertiesdeclinedthe most Overthesameperiod,listingsoffour-bedroompropertiesalmosthalved(466per cent)”
Source:
https://trustforlondon org uk/research/supply-of-private-rented-sector-accommodation-in-lond on/
Sadly for tenants, as the report suggests that stock levels are likely to continue reducing, more tenants will be chasing fewer properties to let which is likely to push rents up further –although their rise will always be capped by wage growth, even in London
How diverse have rental changes been across different London Boroughs?
Rents have essentially been yo-yoing since just before the pandemic During the pandemic, rents actually fell, but since 2021, rents have started to rise rapidly partly fueled by wage rises, partly by a fall in properties to let and partly by demand increasing
What’s interesting though is due to the ‘natural cap’ on rents from wages, there isn’t as big a difference in rents charged versus house prices in London, although some markets continue to defy all trends For example the difference in house prices across London Boroughs is pretty huge Prices in Kensington and Chelsea are just over £1mn ‘on average’ while in Barking and Dagenham averages are just over £355,000, so a differential of 300% Rents in comparison have less of a difference, with Bexley seeing average rents of £1,411 and Kensington and Chelsea recording rents of £3,615, a difference of 250%, still high, but again it shows that there are different dynamics influencing house price inflation versus rents
The table below shows average rents from the government’s own Office of National Statistics and shows not only how rents differ from one borough to another, but also how some have risen by huge amounts while others have only just kept up with inflation
On average, rents have risen by 41% in Greater London since 2015, which is higher than general inflation of 34% during this time, but not as much as is perhaps thought. However, Richmond upon Thames has actually seen a small fall in rents in real terms, and some boroughs have only just managed to keep up with inflation. This shows that, despite the rhetoric about ‘sky rocketing’ rents and ‘greedy landlords’, this isn’t always the case
Boroughs which have seen rents rise in line with (or just above) general inflation:-
Camden
Islington
Barnet
Kensington and Chelsea
Meanwhile, boroughs where rents have exceeded inflation quite a bit include:-
Hammersmith and Fulham
Brent Redbridge
To see how boroughs you let or rent in are performing, see the chart below:-
One task that all landlords need to do prior to the Renters Reform Bill is to make sure they are charging a fair market rent because increases in rent will be restricted once the Bill is implemented and this may leave some landlords out of pocket as it will be harder to increase rents in the future
What are the forecasts for London Rents?
Over the last few years landlords have been hit quite hard with a series of ‘shocks’ that have meant it’s pretty challenging to run rental properties profitably in London, especially if you don’t have a large deposit Getting deals to stack up since mortgage rates have risen has made buy to let investment a lot tougher As a result, rental stock has declined despite huge growth in those who want to rent – be it people moving to the UK from abroad or just students wanting to study at internationally renowned universities
As such, general rents are likely to continue rising in London, which will help ensure that, as long as you do your due diligence, buy-to-let can remain a good investment over time.
Overtime, rents rarely increase much on an annual basis and are certainly not as volatile as house prices Prior to 2016 when different governments introduced policies to reduce investment in buy to let, rents typically rose by around 2% per annum – while inflation increased by 3% each year. A rarely reported fact is that in real terms, many landlords saw a fall in their rental income over time. This was partly due to rents being limited by wage growth and wage growth not exceeding or even matching inflation during this time, but also due to the expansion of the rental market in line with the increase in demand
Due to the tightening of stock and wages expected to rise more than they have in the past, rents are typically expected to rise from 2.5% per year through to 4% per annum over the next five years, which means the main trend is for slightly above inflation rises over the next five years:-
https://wwwsavills co uk/research articles/229130/368940-0
https://wwwknightfrank com/research/article/2024-11-25-new-knight-frank-forecasts-for-hous e-prices-and-rents#
https://wwwhamptons co uk/research/reports/market-insight-autumn-2024-forecast-executiv e-summary#/
https://residential jll co uk/insights/news/jll-residential-forecast-2025-2029