Rents have jumped by 12.3% over the last year to £1,051 a month on average, according to Zoopla, pushing tenants to look for smaller properties with lower running costs.
Tenants are “shifting their focus” to one and two-bed flats this year and last year, from two and three-bed homes previously, the property website says in its latest Rental Market Report.
It says the current difference in rent charged for a two-bed flat and three-bed house is £105 per month outside London, amounting to £1,260 a year.
The survey says the cost-of-living crisis, especially higher energy bills, is affecting the decisions of renters, as heating bills are lower for flats than houses – especially new-build rented apartments, which typically have higher energy ratings.
It says the amount of gas it takes to heat and run a purpose-built flat over 12 months is 40% lower than a terraced house.
“As cost-of-living pressures build, renters will be looking to balance the combined impact of rental and running costs as they make home-moving decisions,” says the report. “We expect the appeal of apartments and energy-efficient houses is set to rise further into 2023.”
However, it adds the “chronic undersupply of rental homes” shows no sign of changing soon as the stock of homes for rent is 46% below the average over the last five years.
The report points out: “The flow of new homes to rent is running 7% below the long-term average, as renters stay put to avoid rent increases. At the same time, private landlords continue to sell homes to rationalise their portfolios in the face of tax and regulatory change.”
It adds that “rents will continue to post above-average growth rates into 2023 despite cost-of-living headwinds”.
The study says that rental growth in London of 17.8% over the past year “is simply not sustainable”.
It points out that current growth figures in the capital reflect rents rebounding off a low base, after a 10% fall during lockdowns sparked by the pandemic. Average rents in London are currently 7.8% higher than before the health crisis, compared to the UK-wide average of nearly 13%.
Rental growth is running highest in urban areas such as Manchester, at 15.5%, Glasgow, at 14.4%, and Bristol, at 12.9%. The North East is the most affordable place for tenants in the UK, with rental growth up by 7.6% compared to a year ago.
However, the report says there are signs that rents are “starting to plateau”.
It points out that rents in urban areas across England, at 10.5%, outpaces rural markets, at 8.5%, “as strong employment growth drives demand in cities”.
The report adds: “Higher levels of new-build supply concentrated around city centres is also becoming more appealing to renters looking for smaller homes with lower running costs.”
Zoopla executive director Richard Donnell says: “What the rental market needs to combat these challenges is more new homes for rent. Greater regulation has seen less new investment and a small but growing number of landlords selling up, meaning the rental market has stopped growing since 2016.
“There is a risk that more regulation to improve standards or potential new measures to dampen rental growth, as proposed in Scotland, may compound the supply problem which is pushing rents up in the first place. Policymakers need to tread a careful path between protecting consumers and ensuring a decent supply of homes for rent.”
