Rental Affordability has Improved Across the UK since 2007 – Even in London

Weak rent price growth has resulted in improved rental affordability for private tenants across many parts of the UK, including London, while rents in northern regions of England are now the most affordable for a decade, a study by Zoopla has found.

The property portal has assessed the trends in rental affordability across the countries and regions of the UK since 2007, focusing on the affordability of renting privately for working households, with almost 75% of private tenants working full or part-time, according to the English Housing Survey 2016/17.

The analysis, which tracks the average rent for a one, two and three-bedroom property over time and expresses this as a percentage of average weekly net earnings for a single full-time worker, found that, over the long-run, rents have tracked the growth in typical wages.

Nationally, rent prices have ranged between 28-32% of average earnings over the past ten years.

The existing proportion of typical wages spent on rent is 30% – exactly in line with the long-term average. There are wide regional variations in rental affordability, however, as a result of differing levels of rent price growth.

The research shows that a range of factors influence rent prices and rent price growth, including: migration, employment growth, and the relative affordability of homeownership.

According to Zoopla’s data, rents have increased the most since 2007 in the East of England (23%) and the West Midlands (20%).

London and the South East have the highest absolute average rent prices, while both have recorded growth of 18% since 2007, with increases weakening in the last two years.

In contrast, rents have risen by just 1%, 5% and 9% in the North East, North West, and Yorkshire and the Humber respectively over the same period.

Weak rent price growth means that rents in the northern regions of England are the most affordable in a decade, averaging between 25-27% of the typical full-time wage.

Zoopla also found that rental affordability has improved in London, as rent price growth is unchanged on 2014 levels. This is a result of weaker employment growth, lower levels of in-migration and stretched affordability limiting what tenants can afford to spend on rent.

Rental affordability peaked in London in 2017, at 43% of the average earnings, and has fallen back to 39% – in line with the long-term average for the region.

The proportion of earnings spent on rent reached almost 35% in the South East and East of England in 2018 – close to a ten-year high.

Stretched affordability has limited rent price growth in these two regions, causing rental affordability to improve over the past year.

Richard Donnell, the Research and Insight Director at Zoopla, says: “The private rental market is a complex and diverse tenure, which has been the focus of a growing number of policy changes, with further changes being proposed. The reality in the rental market is that landlords are rent takers, having to accept what renters in the market are able and can afford to spend.

“Just like the sales market, there is no single UK rental market. Rents have not increased rapidly in all markets. Our analysis shows a wide variation in rental growth over the last decade, which creates a varied picture for the affordability of renting.”

He explains: “In London and southern regions of England, rental affordability has become stretched, and this has acted to limit the growth in rents and resulted in a modest improvement in rental affordability. Rental growth is set to remain subdued in the near-term, but the underlying demand for renting is set to remain robust, largely a result of the high cost of homeownership, in terms of deposits and income required to buy. An under-researched part of the market is the level to which greater sharing of property has contributed to higher rents, particularly in inner London, which makes accurate assessments of the affordability of renting more complex.

“Weaker new investment by private landlords means slower growth in new rental supply, which also supports overall rent levels. In London, there are localised concentrations of new build supply where availability of high-quality rental supply will increase in 2019, boosting choice for renters.”

Donnell looks at the other parts of the country: “In northern regions of England, rents are their most affordable for a decade, as rental growth has fallen well short of the growth in average earnings. This does not automatically mean rents are set to rise. The growth in rents is dependent upon growth in employment. The lower cost of accessing homeownership means it is easier for renters to shift into homeownership than in regions with high house prices, and this keeps rental growth in check.

“At a national level, the proportion of earnings spent on rent has remained relatively stable over the long run. This is to be expected, as renters can only allocate a certain amount of earnings on rental payments. This relationship between rents and earnings is an important attraction for new corporate investors entering the market and developing so-called build to rent developments.”

He concludes: “The supply of rented homes is an important driver of rental levels and affordability for renters. Continuing to attract long-term, stable investment that continues to boost the supply of quality rented housing is important for the longer-term health of the private rented sector.”