Zoopla has issued the first major private rental sector market forecast for 2024.
Rental growth this year is on track to end at over 9.0 per cent, higher than earnings growth which is expected to be circa 6.0 per cent - a higher rent figure than expected because of faster earnings growth and the impact of higher mortgage rates keeping more people renting.
The portal says rents for new lettings are expected to keep rising ahead of earnings growth in 2024, projected to be 3.6 per cent, in the face of ongoing supply constraints and sustained higher mortgage rates.
A statement from Richard Donnell, Zoopla’s research chief, says: “We currently anticipate UK rental growth of 5.0 to 6.0 per cent in 2024 with the impetus for growth originating from regional cities. We believe rental inflation in inner London will slow more quickly in the next year in the face of higher rents and affordability constraints. This would act as a drag on the UK rate of growth, potentially halving it to more sustainable levels.”
Zoopla also identifies some trends which are emerging now but likely to continue well into 2024.
Firstly, in the light if higher rents and a scarcity of supply, renters are being forced to consider renting smaller homes, moving to cheaper areas or sharing property with other renters to reduce costs. Data from the Resolution Foundation found private renters have experienced a 16 per cent reduction in floor space per person over the last 20 years.
Donnell says: “In our view, sharing is supporting high rents in inner London, where the reduction in floor space per renter has been greatest. Increased levels of sharing could be a key factor in rents continuing to rise above earnings across regional cities over the next 12 to 24 months.”
Secondly, rental growth at a city level is running from 6.0 per cent per annum in Brighton and Exeter, up to 15.6 per cent in Edinburgh and 14 per cent in Manchester.
Several cities are registering slower annual growth than a year ago, while others are tracking at a similar rate of growth.
The biggest slowdown has been registered in inner London. In this area, rents are slowing from a high base, having sharply rebounded following the pandemic.
Overall, the portal says that Increasingly unaffordable rental costs should temper demand and lead to a reduction in the rate of growth. However, the scale of the mismatch between supply and demand means that rental growth will reduce more slowly than might be expected.
Donnell concludes: “If supply remains low then a weaker labour market, lower immigration and falling mortgage rates would all be needed to reduce demand to a level that would reduce rental growth back towards 5.0 per cent per annum.”