Rented housing in London is at its least affordable levels for 10 years after typical rent rises of 47 per cent in the past decade, according to Hometrack.
In stark contrast to London, and other areas of southern England, rental growth elsewhere has been broadly flat over the past decade, the consultancy says. In Yorkshire and Humberside average rents have remained stagnant, while in the North West and North East rents have fallen by seven per cent and four per cent respectively.
Hometrack explains that the reason for this difference is that jobs growth after the financial crisis – when rents fell between five per cent and 12 per cent as accidental landlords boosted supply and falling employment weakened demand – has been two to three times faster in London.
Rental growth in the capital, which has averaged 4.5 per cent per annum since 2010, has rapidly outpaced earnings leading to the current levels of unaffordability. Conversely, annual rental growth at a national level, excluding London, has been averaging just 2.7 per cent per annum and largely tracked the growth in average earnings.
However, in southern parts of England and the Midlands rental growth has started to outpace earnings from 2013 onwards as economic conditions improved. This recent shift has led to an overall 20 per cent increase in average rental values in these regions since 2007.
“Rents fell by between five per cent and 12 per cent in 2008/09 and this explains why rents in parts of the country outside of London, where rental growth has been subdued, are only just back to where they were a decade ago. London has the largest and most liquid rental market” says Richard Donnell, Insight Director at Hometrack.
“Another important factor is the growth in sharing amongst renters which means in many parts of London there are multiple incomes combining to pay the rent. This is a particularly strong trend in inner London where a high percentage of rented homes are fully occupied” he says.
Outside London the drivers of rental demand have been more muted and the resulting impact on rents is less pronounced. However, increased economic activity is feeding into demand and resulting in increased levels of rental growth, at a rate more in line with earnings growth.
Our analysis shows that over the long run tenants spend between 32 and 37 per cent of earnings on rent at a national level.