Tenants will often feel the strain of their rental payments. Supposedly, because the rental market’s volatile nature can cause prices to fluctuate regularly. But is it simply the tenants’ perception, or are short-term rent prices rising in the UK? This article analyses the fluctuations in the residential rental trends of the UK over the past 18 months. It also pays special attention to the notoriously expensive capital city – London.
As of March 2020, the average rental prices in the UK lie at £958. According to the Homelet Rental Index (2020), there has been an increase of 1.8% in rent prices over the past year. This may not seem like such a significant number, so why does it feel like rent prices are high? However, one explanation might be a regional disparity in rent prices that prevails across the UK. Places such as London having a staggering average rent of £1673. If we exclude London from the equation entirely, average rent prices in the UK fall to just £793. Rent is a volatile force that is strongly affected by the strength of local economies and current trends of globalisation and digitalisation. Here are five residential rental trends that could be causing rent in the UK and London to increase.
Economics
A common point of discussion on why Rent prices are so high in London has to do with the region’s economics. However, the demand for rental housing outstrips its Supply. It means that the number of people in need of housing exceeds the actual number of houses available on rent. One reason for this imbalance could be the number of overseas buyers investing in a private property. A report by Savills (2012) stated that overseas buyers buy almost 50% of prime London property. As a result, most of the property is bought by people who do not live and work in the UK and do not contribute to the labor force. This diminishes the supply of housing that can be purchased and forces people to look for places to rent instead. Thus, the demand for rental housing increases, which also increases the price.
Technology
The Digital Age has revolutionised industries across the world, and the rental market is no exception. Moreover, modern technology, like the Internet, has streamlined the process of renting. According to Fields (2019), “the management of tenants and properties is increasingly not only mediated, but governed by smartphones, digital platforms, and apps.” This results in the phenomenon known as the “automated landlord,” a figure that can harvest data about tenants and use it to adjust rent prices accordingly.
The influence of technology has also stabilised rental property prices by giving both tenants and landlords. It has given an open platform where they can compare prices and make decisions. There is little risk of overcharging as well as undercharging. Why? because tenants are only one click away from finding the lowest priced property for their money.
Supply
Another major reason why prices in London seem to be increasing has to do with the Supply of housing in the region. London faces issues of low housing density in the areas where most people wish to reside. A report by Solomon (2013) indicated that some “526,000 new homes need to be built in London simply to keep pace with the region’s booming population… yet on current projections only 250,000 homes will be built in the capital by 2021.”
Considering this shortage of housing, the rent prices in highly populated regions such as Central London tend to hike up.London also faces a shortage of high-rise buildings and skyscrapers, which can accommodate large numbers of people. It is ranked #50 in the world by a number of 150metre+ completed buildings (Skyscraper Centre, 2020). Which is low compared to mega-cities such as New York and Tokyo. The lack of high-rise buildings adds to the shortage of housing, causing rent prices to increase.
Rent-to-Rent
An ethically dubious practice that has found growing popularity in mega-cities like London, Rent-to-Rent could also be one of the main reasons for skyrocketing rent prices. Moreover, Rent-to-rent is when a middleman rents a property from a landlord, and then further rents it out to tenants at higher prices to make a profit. This is mostly good to overcrowd a property, so people pay higher prices for smaller spaces. The middleman guarantees the landlord a fixed monthly payment. He also earns a profit for himself and overcharges the tenants.
Rent-to-rent is popular in London because the high demand for housing causes many tenants to have no other choice but to live in subpar conditions at exorbitant rates.
Migrants, Population and Rent
There is evidence that a high migrant population might be the cause of London’s high rent prices. Also, migrants contribute to increased demand for housing by increasing the general population of the city. Reino (2019) states that a “1 percentage point increase in the UK’s population due to migration increased house prices by 1%.” This might be because migrants are a more vulnerable group of society with relatively lower incomes. Moreover, they are more likely to become victims or overcharging overcrowding and rent-to-rent accommodations.
Conclusion
Every place has different residential rental trends. Overall, rents in London and other UK areas are relatively stable in the short term but show a trend of increase in the long term. The unique economic features of each region contribute to unequal rent prices across the country. This results in some places having lower rents and others showing up to be the highest in the world.
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