On several occasions over the last few months in my Medway Property Blog, I predicted that the rate of rental inflation (how much rents are rising by) had eased over the last year. At the same time I felt that in some parts of the UK rents had actually dropped for the first time in over eight years. Recent research backs up this prediction.
Rents in Medway for new tenancies fell by 0.4% in the last 12 months (not existing tenants experiencing rental increases from their existing landlord). When we compare that current rate with the historical rental inflation in Medway, an interesting pattern emerges :
· 2016 - Rental Inflation in Medway was 5.1%
· 2015 - Rental Inflation in Medway was 9.4%
· 2014 - Rental Inflation in Medway was 3.2%
The reason behind this change depends on which side of the demand/supply equation you are looking from. On the demand side (from the tenants point of view) there is the uncertainty of Brexit and the fact that salaries are not keeping up with inflation for the first time in three years. Critically this means tenants have less disposable income to pay their rent. As an aside, it is interesting to note that nationally, rent accounts for 29% of a tenant’s take home pay (Denton House).
On the supply side of the equation (landlords point of view) Brexit also creates uncertainty. However, the biggest issue was a massive upsurge of new rental properties coming on to the market in late 2016, caused by George Osborne’s new 3% stamp duty tax for landlords in the first part of 2016. This meant a lot of new rental properties were on the rental market all at the same time. The greater choice of rental properties for tenants seemed to curtail rental growth. A slight softening of Medway property prices has compounded this. Figures from the Bank of England suggested that first time buyers rose over the last 12 months as some were more inclined to buy instead of rent. Together, these factors played a part in the ongoing moderation of rental growth.
The lead up to the General Election in May didn’t help; after all people don’t like doubt and uncertainty. So now that we have a mandate for going forward over the next 5 years hopefully that has removed any stumbling blocks stopping tenants making the decision to move home.
Whether it be hard or soft Brexit negotiations (and with the election result the Tory’s might have to take a softer approach) the simple fact is, we aren’t building enough properties for us to live in.
Both in Medway, the South East and the wider UK, long-term population trends imply that rents will soon be growing faster than inflation again. Look at the projections by the Office of National Statistics:
Population Estimates for Medway Council over the next 20 years
Tenants will still require a vibrant and growing rental sector to deliver them housing options in a timely manner. As the population grows in Medway, and wider afield, any restriction to the supply of rental properties (brought about by poor returns for landlords) cannot be in the long-term best interest of tenants. Simply put, rents are most likely to go up.
The fact is that I see this as a short-term blip and rents will continue to grow in the coming years. With rents only accounting for 29% of a tenants’ disposable income, the ability for most tenants to absorb a rent increase does exist.
Are you looking to rent a property but insure about the future? Perhaps you are a landlord and thinking of selling? Or simply someone who wants a chat about the local property market? I am hosting a free property surgery on the 4th August. DETAILS HERE
Thanks for reading.
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