Rents to soar over next 3 years

[Twiglets1]

As reported in the Telegraph today, the Resolution Foundation has calculated that rent will rise at almost double the rate of earnings between now and 2027. The think tank said tenancies for new and existing lets are expected to grow by 13% over the next three years – almost double the 7.5% growth in average earnings, as forecast by the Office for Budget Responsibility.

The cost of rent for new tenants has increased by 18% since January 2022, but this burst of growth is yet to work its way through the whole private rental sector.

Cara Pacitti, senior economist at the Resolution Foundation, said: “Millions of families agreeing new tenancies across Britain have faced surging rents in recent years, as we have emerged from the pandemic.
“Those rises for new tenancies are starting to slow but how much renters actually pay will continue to outgrow how much they earn for some years to come as those not yet exposed to higher prices are hit.
“With more families renting privately, and renting for longer too, these rent surges are a bigger problem for Britain, and require bolder solutions from policymakers.”

The question is, with mortgages & rents both becoming unaffordable to many, could the next election be won or lost on the issue of the property market crisis?

https://www.telegraph.co.uk/money/property/buy-to-let/tenants-face-three-more-years-of-soaring-rents/

Most of the original social housing stock is now privately owned and being let by Landlords. Shelter and the Gov have published numerous studies with shocking numbers like 21% of private rental properties are in dire condition, not fit for human habitation:
“In 2022, 15% or 3.7 million dwellings failed to meet the Decent Homes Standard. Between 2011 and 2019, there was a notable reduction in the prevalence of non-decent dwellings across all tenures, Annex Table 4.3.
Private rented dwellings had the highest proportion of non-decent homes (21%) while the social rented sector had the lowest (10%). Among owner occupied homes, 14% failed to meet the Decent Homes Standard, Figure 4.3”

(For a dwelling to be considered ‘decent’ under the Decent Homes Standard it must:

• meet the statutory minimum standard for housing (the Housing Health and Safety System (HHSRS) since April 2006), homes which contain a Category 1 hazard under the HHSRS are considered non-decent
• provide a reasonable degree of thermal comfort
• be in a reasonable state of repair
• have reasonably modern facilities and services)

The private rental sector’s properties are in worse condition than what little social housing is left- only 10% of those are unfit. Even though there are people dying from things like mould infestations.

Private landlords are offering bad properties for high rent imho. As much as we complain about the government, they are doing 110% better at offering a good property than are private landlords and for much lower rent. Social housing is btw, not a charity, it is not for profit so the rents DO go towards the upkeep of the properties rather than a private landlord’s personal financial enrichment.

It isn’t just those most in need in social housing, not when families can pass down a lease as an inheritance and once you are in a social rental, you can then proceed to move up the career ladder and make an unlimited income, but never ever be asked to move out for someone on a lower income.

Rents are always increased:

From 1989 to 2024 annual rent inflation averaged around 3.76% in the UK

From 1989 to 2024 rent inflation has beaten general inflation by around 0.91% annually.

In the last 10 years from 2013 to 2023, average rents have increased by around 121%

In the last 35 years from 1989 to 2024, average rents across the whole of the UK have increased every year.

If rents increased by an average of 3.71% over the next 25 years, rents would be around 140% more than they are today

https://tradingeconomics.com/united-kingdom/rent-inflation

I think more social housing has to be built definitely and the rules need to be changed so new tenants no longer expect to have the opportunity to buy them or pass down the lease as an inheritance. It should be based on need and people given a 10 year lease say that can be reassessed every 10 years whether the need is still there or not. This would stop the situation developing where you have a single tenant living in a family home for their whole lifetime & then possibly transferring it to their children regardless of need.
We need to build and then keep social housing stock in the hands of the government who should have a legal obligation to maintain them to a good standard.

But would a proposal like that be a vote winner or vote loser?

“You say this but there are also a lot of ftb’s on the market. We’ve seen a lot of young people get on the ladder since 2020. The more available properties become, the more renters will be willing to take the leap into ownership.”

I think a survey found the increase in ftbs was majorly down to the number of elderly dying in Covid so that the ftbs had inherited sufficient funds for a large enough deposit to pass affordability checks. It wasn’t about them suddenly being willing to buy because of availability of properties. It was about a family member dying and leaving them a pile of cash.

Scary stuff but also obvious in a way. House prices & rents both go up over time.

@Twiglets1

I agree, except I would go one step further in saying we do not need to build any social housing. We have 1.1m vacant properties (5% of all homes) and more housing stock per capita than ever. We don’t need to build more houses to solve the housing crisis. We need the government to simply buy vacant homes and start a program of buying properties from private landlords who wish to vacate the sector for a fair market value.

True in the long term; although due to the 2008/2009 crash house prices did drop significantly and in some parts of the U.K. did not reach precrash prices until over a decade later. With house prices there are years where the prices go down. This has never happened for rents.

That’s true, house prices are not linear and can go down as well as up, which HAS happened to me, but in the long term they both rise.

Me too. I was upside down on a mortgage for years after the crash because I had bought only six months before the crash. Was a stressful time.

We have been through this a million times before. Social housing is subsidised by the Government and it therefore isn't fair to compare the rent charged for social housing Vs private lets.

It comes down to how the social housing is built and how the capital for the housing is raised. Anyone who has needed to raise capital for anything recently (including their own house) will know that the costs of borrowing money can be extortionate. A landlord needs the tenant to cover this cost otherwise they are losing money. There is also the fact that the landlord is buying a house at market rate in the first place so the amount of money that needs to be raised is high so this increases the landlords monthly outgoings. The Government often subsidise the cost of building social housing either directly through giving land or money to developers to build the houses or by forcing developers to include some SH at a discounted rate on big developments. Developers obviously also aren't charities so factor the money they have lost on building the SH into the cost of the private houses for sale that are often bought by landlords.

My point is that SH isn't a sustainable model for the majority of the population. The Government simply doesn't have the capital, free land or enough developments being built to increase the amount of SH. It isn't enough to pay for the maintenance for the property and the amount of subsidy as a whole needs to be considered.

@Bumpitybumper
“The Government often subsidise the cost of building social housing either directly through giving land or money to developers to build the houses”

It’s not a gift. There is always a price tag and the housing association has to repay a price for the land or repay the loan of funds. The government plays the same subsidising role as the high street bank giving a landlord a BTL 25 year mortgage.

The creation of social housing is subsidised by the government the same way purchasing a home is subsidised by a bank, but the operations of it, including paying back the ‘government mortgage’ isn’t subsidised at all, just like for a private landlord.

The maintenance of social housing is paid for by the rents. The government doesn’t subsidise this. The housing association pools some of the rents to then cover maintenance and future major repairs like new roofs. Because housing associations are not for profit, they earn no profits and therefore pay no tax unlike private landlords who can and do profit from rental properties.

It would be much cheaper and faster for the government to buy the 1.1 million vacant homes plus any that private landlords don’t want any more, and then package them off to social housing associations than it would be to build new build homes. The only reason MPs frame the discussion as “we need to build more…” is to get the votes of construction firms (which the MP likely has in their personal investment portfolios).

The government has the capital to do this, if it just redirected it’s £1bn per year start up fund and used it to start up new social housing associations by buying houses for a few years it would be done and dusted. The housing associations would be far more likely to pay that money back plus interest.

“My point is that SH isn't a sustainable model for the majority of the population.”

My point is that SH is a sustainable model for the rental sector. Whether the majority of homes are rented or owner-occupied is an entirely different issue.

The fact is that a large private rental sector has resulted in private landlords letting 110% more bad homes (more than double the privately rented homes are not fit for human habitation) for 100% higher rents (private rent is approximately double social rent). This is also a cause of tenants being trapped into renting as they cannot afford to save a deposit to buy a home because they are paying double what they should.

Fix the rental sector, and home ownership will once again become achievable for the younger generations and any of the older generations who didn’t make it into the property ladder or fell off due to divorce, death, dissbility or other crisis.

I’m so fed up of LLs being the ‘bad’ guys. I’m a decent LL. I own one property which is in excellent condition. Problems get fixed asap.

I look after my tenants and sadly they don’t repay me in looking after my property. I try and meet them before they sign up to the contract but I’ve realised that looks (and income) can be very deceptive.

I’ve made allowances for people in desperate straits and lowered the rent. I’ve made it plain that they can talk to me.

People in life are good and bad. I’m not making excuses for the bad ones (LLs or tenants) but I’m sick of being vilified for providing a roof over a family’s head.

Without a massive sea change in government policy and a few decades of house building, I can’t see how this will change… but I hope it will.

Now compare that to average salaries and average cost of living.

You can only bleed a stone so dry. The housing ‘supply’ crisis that so many quote, is because of multiple properties being in the hands of the over 55s disproportionately. Many of those in turn avoid the BTL regulations by turning them into AirBnBs.

It matters not, as Labour will make life for landlords increasingly unaffordable, so a lot of supply will be coming back onto the market.

This is completely wrong! The bank absolutely doesn't subsidise private landlords in a similar manner to how the government subsidises SH. Banks are businesses and charge landlords to borrow capital in the same way that they will happily loan people money for cars or anything else you want to buy providing you meet their lending criteria and will pay them enough interest to make it worth their while. Landlords are paying the true cost for the capital they are using to buy the house.

If (big if) the government charges for the land they provide for SH it will not be priced at market rates. They will also provide cheap (and sometimes free!) capital either directly or indirectly to build the houses. As mentioned previously they will also impose planning conditions on developers so that they must build more SH or they can't build the rest of the development. This is not comparable to a landlord buying houses at market value with a mortgage that is charging interest at market rate.

The fact you can't admit this is mind boggling. Have you not read all the articles and threads on MN about Landlords making a loss now because interest rates have risen? This wouldn't happen if they were being subsidised. Also look at the average profits of Landlords with BTL mortgages and the delta between SH rent and private rent to see that Landlords really aren't pocketing this 'additional' rent but instead are often using it to service debt.

Naive and wrong.

As I previously wrote, you need to look into the economics of the BTL sector and how this compares with SH. As a starter, look at this
https://theindependentlandlord.com/does-btl-make-money/

If you're right that private rentals cost 100% more than SH then the landlord certainly isn't pocketing the difference. Yet you insist that government subsidy is irrelevant....

Honestly, most people don’t see all LLs as the “bad guys” but the ones who do are more vocal about it!

There are good & bad LLs and good & bad tenants. I do think there are too many bad landlords that are allowed to get away with murder and I hope Labour introduce tougher penalties for them. It makes me sick to hear about the appalling conditions some tenants have to live in. But that’s not the same thing as saying all LLs are bad.

I have friends who rent out flats so I have heard stories from the other side (bad tenants that have wrecked the property or absconded owing rent) so I know it’s not as simple as one side Good, one side Bad.

But equally you could argue that the government does subsidise private rental prices. Social housing has become a rarity, meaning that gap in supply currently needs to be filled by private rents.

And because there is a real disconnect between earnings and rents that gap in affordability is bridged with housing benefit. In 2022/23 the government of the United Kingdom was expected to spend approximately 15.4 billion pounds on housing benefit.

It's not equally though is it? SH is almost always heavily subsidised from the point of conception whereas a private landlord buys at market value using a mortgage product available to everyone. Some tenants may receive housing benefit but some may not. The model is radically different and this is why landlords and tenants that privately rent aren't cushioned from market forces in the way that SH organisations and tenants are.

I do accept though that there are lots of people that can't afford to rent at market value. Some of these will be in SH and some will be in private rentals receiving HB. It is a very difficult problem to solve fairly! Should everyone be entitled to live where they like (even very expensive areas) despite not earning enough? How would this work realistically when there are arguably objectively more desirable areas where most people want to live and therefore demand will always exceed supply? People keep talking about empty housing but do people in London want to move to the outskirts of Liverpool etc? How do we incentivise people to work hard and show that they benefit from this if they are paying astronomical rent whilst their neighbour is enjoying the same accommodation with a massive subsidy? We can't afford to subsidise everyone so I am not being goady with this question. We have to make it worthwhile for people to provide for themselves otherwise the whole system will become unaffordable and the poorest will suffer. People need to be incentivised to work in often pretty unpleasant jobs that society needs and aren't paid massive salaries. Believing you are paying for a nicer home would certainly do it for most people but what about those who can't or won't work?

Bringing in Rent Smart Wales panicked many good little landlords with one small property who just sold up.

We had one small house, hadn't put the rent up over COVID. Went in for an inspection. They had trashed it. Smashed up the fire alarms . Left us with bed bugs and dog fleas. Cost us 4k to renovate and 3k to evict.

We sold up.

As small landlords sell up, overseas investors are buying up properties in large numbers. In Cardiff, Swansea especially.

So now we've landlords from the Netherlands, middle east , London Etc hiding behind corporations the Welsh government will never get the better of. It's scary.

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To back up @Ohyeahwaitaminute Im going to throw in a view that covers both sides of the argument here.

My parents own and rent out several properties so here are a few examples.

House 1 - renter asks permission for everything. Inspections are always that the house is immaculate. The people have lived there 10 years and have looked after the property to such a high standard my parents have rarely raised the rent and they pay £550 a month which is about £300 less than the areas rents. They are the ideal tenant and my parents never want them to leave unless it is to buy their own property and I think my parents would even sell them the house if they asked.

House 2 - renter ran up bills galore, took months to evict and ended up needing a court order to evict them. Cost to my parents in lost rent and fixing the house they trashed so it could be rented out again after £50k. This was then marketed at going rate to help recover costs.

Surprisingly there is actually very little profit in being a landlord if you do things well which is why there are so many 'bad' landlords.

The problem with rising rents isn't just the interest rates going up. Its also the silly things that the government have put in place forcing rents up as landlords need to do xyz and houses need to meet standards that mean massive overheads and also making it really hard to evict people who are playing the game and have no intention of paying rent.

What needs to happen is putting sensible controls in place for both sides. Control rents, have independent rent review boards away from the estate agents control that fixes rent for the area/size of house etc and stronger powers for the landlords for bad renters as well as rent mortgages where no deposit is required as long as you can prove you pay rent for x amount of years that would be bigger than a mortgage.

Rents going up and up is unsustainable for renters but the problem is not the small landlords, rather the big multinational companies / foreign 'investors' who own property and rent out purely for profit.

Thank you for sharing your personal insight which was very interesting.

The only thing I query is the sentence that "Surprisingly there is actually very little profit in being a landlord if you do things well which is why there are so many 'bad' landlords".

I do not accept that there being very little profit in the business is a reason - which seemed to read a little like an excuse - for there being so many bad landlords.

It is not acceptable under any circumstances for landlords to expect their tenants to live in poor conditions with damp, mould etc. They will get the main profit from the business when they come to sell the property and in the meantime the tenants are effectively paying their mortgages for them. If the business isn't working out for them financially then they should sell up, not continue it but without investing enough money into keeping the property to a decent standard.

Your parents sound like altruistic landlords and very kind but I think we have to be careful in how we characterise 'good' landlords. Landlords don't have to offer rent at below market value to be deemed good. This for most Landlords would be completely unsustainable and lead to their ruin.

Lots of larger scale landlords build property 'empires' by taking out lots of interest only mortgages to purchase properties. They actually don't intend on ever paying the mortgage down or profiting that much from the rent that gets paid. They instead gamble on house prices increasing and them building capital that way. There is nothing inherently wrong with this model and it can be a great source of good quality rental housing but obviously they couldn't just absorb interest increases in the same way your parents can (who presumably own the properly outright). This doesn't make these landlords bad though or greedy. They are simply running their property business as a genuine business.

It reminds me of people that make craft items for a hobby and sell them for a fraction of what anyone who is trying to make a living out of selling them would charge. Obviously customers love to pay less but it does devalue the product in people's eyes and make it very difficult for genuine businesses to make a living or charge a fair price for their time without being called greedy etc.

I agree with @Bumpitybumper that LLs shouldn't have to charge below market rent to be deemed "good".

If I was a tenant I would expect to pay market rent and be happy enough with my LL as long as they provided a safe, decent home and responded quickly when things needed fixing or updating.