UK rents rising at half the level of earnings growth

The rate of rental growth is increasing as supply tightens and demand increases, according to a new quarterly report published by Zoopla.

The property portal has launched its inaugural Rental Market Report, containing a new index of private rents powered by Hometrack – which records trends in the private rented sector across the UK.

Zoopla has revealed that UK-wide rental prices are up by 2% annually, to a three-year high average of £876 – an acceleration in growth from 1.3% one year ago. The current rate falls just below the 10-year average of 2.3%.

The report highlights that the increase in private rents is failing to keep pace with the growth in average weekly earnings, meaning the affordability of renting has improved over the last three years. Rents are rising at half the rate of the average UK earnings growth, which is up 4% annually.

Zoopla research and insight director, Richard Donnell, commented: “Renting is more affordable today than the 10-year average. This follows weak rental growth over the last three years, and an acceleration in the growth of average earnings. FTBs, 80% of whom exit the private renting sector to buy, have also moderated rental demand.

“Rental affordability varies widely across the country, reflecting the relative strength of local economies. High house prices increase the underlying demand for rented homes. Meanwhile, in markets where buying is more affordable, rental demand is limited, resulting in lower rental values.”

Zoopla’s report reveals regional rental affordability is most attractive in the North East, where rent equates to 22% of a single earner’s wages, and least attractive in London, where it equates to 46%.

Other than the South West and East Midlands, all areas of the UK have shown an improved level of rental affordability during this quarter, compared to the five-year average.

London’s figure for a single person’s wages going on rent, 46%, compares to a five-year average of 49%, though if it is based upon 1.5 earners then rent would fall to 33.2% of earnings – in line with the UK average.

“Whilst 46% of an average single person’s earnings will go on rent in London, the majority do not rent on their own, which improves the affordability profile,” Donnell added. “Two people renting a two-bed property in London will spend 24% of their earnings on rent, which increases to 28% for two people renting a three-bed home.

“The supply of rented homes has an impact on rental growth. In regions and cities where supply is shrinking, the cost of renting is rising at an above average rate, while weaker growth markets are registering faster growth in supply – running ahead of what is often rising demand. Subtle differences in the dynamics of supply and demand can have a material impact on localised rental growth.”

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