Behaviour Changes in the Rental Market

24th November 2022

Behaviour Changes in the Rental Market
The latest stats show average rents have gone from 2% annual growth in 2021 to 12.3% growth in 2022 and a massive 17.8% in London. At the same time, supply levels have plummeted, with the availability of rental stock as much as 46% below the five-year average. If you then add in the cost of heating a home - the energy price cap has risen from £1,137 in January 2019 to £2,500 in September 2022 - and double-digit inflation, it should be no surprise tenant behaviour is changing.
Both studies show tenants are now choosing to stay longer in their existing homes. Especially since their choices have become more limited and rises for existing tenancies (+3.7%) are far lower than they are for new ones (12.3%). Rightmove found that the average tenancy is now over 2 years (the choice of 63% of renters) with only 21% choosing to stay for 12 months or less.
The types of homes tenants are choosing are also changing – demand has increased markedly for 1 and 2-bed flats but has fallen for 2 and 3-bed houses. Smaller properties are not only cheaper to rent, they are also cheaper to heat, too. The amount of gas required to heat a purpose-built flat is 40% less than the amount required for a terraced house and 25% lower for a converted flat. Energy efficiency is another increasingly important consideration - EPC D-rated homes require 25% more gas than C-rated ones and E-rated ones require 48% more. You can see from the list (RHS) that this is driving an increased desire to have all bills included (up 36%):

Top ten features with the biggest increase in tenant demand – Zoopla

All bills included         +36%
 Balcony             +22%
 Communal garden         +22%
 Pets allowed             +22%
 Zero deposit             +22%
 Transport links         +21%
 Flexible tenancies         +20%
 Well connected         +18%
 Professional management     +17%
 Parking             +17%

So, are these long-term trends or short-term ones?

There’s no doubt, the current high demand is likely to eventually modify, as it has been driven, to an extent, by the reversal of our flight to the countryside during the pandemic. But as you can see from the above list, Covid’s effects are still lingering in our desire for more space (balconies and gardens) and it will all take some time to fully unravel. Supply, on the other hand, is only likely to improve if the government reverses its punitive tax and legislative approach to landlords. With a new Government and Housing Minister – Simon Clarke – it is not yet clear what kind of approach they will take, but they do seem to be making more pro-business noises than Boris.
Affordability, though, is less stretched than you might think. According to Zoopla, affordability is broadly in line with the long-term average. Zoopla also reported that 75% of tenants found rental payments very or fairly easy, while only 25% found them fairly or very difficult to pay. The figures were a little worse for those with lower incomes, but not by much, with 68% finding it fairly easy and 32% difficult to pay. It suggests there could be room for further rent rises.
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