Rental demand will continue to outweigh supply this year
July 2022 PCL rental index: 193.0
July 2022 POL rental index: 195.3
2 minutes to read
As the new academic year gets underway, demand continues to far outweigh supply in the lettings market in London and the Home Counties.
While new supply was a third below the five-year average in August, the number of new prospective tenants registering was 75% higher.
For landlords, the clear conclusion is that it won’t become a tenants’ market any time soon. For tenants, there is still a need to move quickly and decisively due to the stock shortage.
While transaction volumes and prices in the sales market remain robust, there is less chance of so-called accidental landlords emerging to redress the imbalance. These are owners who fail to sell for the desired asking price and instead decide to let out their property.
That said, rising mortgage rates will ultimately curb demand in the sales market and create more landlords, although any meaningful movement is unlikely in the short term due to the gradual effect of people rolling off fixed rate deals.
It is also true that the government’s energy price support package will take some of the financial distress out of the sales market. Indeed, the government appears to be in pre-election giveaway mode, which may encourage buyers and sellers to act between now and the next election in spring 2024.
Buy-to-let rather than accidental landlords may offer a better chance of increasing supply in the short-term.
Despite a haze of uncertainty surrounding proposals in the Renter’s Reform Bill designed to protect the rights of tenants, the extent to which rents have increased over the last 18 months is attracting buy-to-let investors.
The residential property market may once again prove its self-correcting credentials as more landlords put downwards pressure on rental values.
For now, increases are narrowing as the effect of a large spike downwards at the start of 2021 works its way through the system.
Rental values in prime central London rose 19.9% in the year to August, having fallen from 29.2% in April this year, the highest figure recorded in more than 20 years.
In prime outer London, the rise in August was 15.2%.
In addition to these inflation-busting increases, real estate is becoming an attractive asset class as other markets appear volatile.
Volatility indices have risen since August and one of the reasons the US dollar has strengthened in recent weeks is because more investors are looking for safe-haven assets.
For now, we would expect the double-digit increases to continue.
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