The UK cost-of-living crisis is becoming increasingly apparent to people, in the growing gap between the wages they earn and what they spend on groceries and fuel bills. But it is also squeezing the most vulnerable in another less visible but no less fundamental part of life — rent. Happily, there are signs both renters and landlords are finding solutions to work round the crunch without the need for ham-fisted government intervention.
Britain’s private rental market is on fire amid surging accommodation costs and limited availability. According to property portal Rightmove Plc, the demand for leased homes versus the available supply is at its "most competitive ever.” In London, where rents had plummeted the most during the pandemic exodus to the country, the average monthly outlay for a dwelling is up 14% during the past year to more than 2,200 pounds ($2,700). A quarterly survey released Tuesday by Zoopla Ltd., another property portal, shows a similar picture, with London rents up 15.7% annually. Housing costs in the rest of the country, excluding London, are rising at a record pace of 11%, according to Rightmove, with a ratio of more than three times the number of willing renters to properties listed. It's a jungle out there.
The sharp rise in rents is not entirely a supply story. As the government is making it much harder to expel undesirable tenants, the advantage to landlords of knowing who is residing in their properties has risen, especially if leaseholders are paying on time and looking after the place. Better to stick with an existing relationship and to have the security of an agreed lease for an extended period, particularly if matched with a fixed-rate buy-to-let mortgage. Hence 63% of landlords in the Rightmove survey haven't increased rental charges, and the balance who have are largely just readjusting after a period of reduced levies during the pandemic recession.
Tenants are also implicitly recognizing the reality of the situation. They are either choosing to stay put, or are involuntarily excluded from getting on the home-ownership ladder due to a combination of soaring house prices and a tightening mortgage market. Either way, the average length of tenancy has increased. Only a fifth of agreements end within a year, with nearly two-thirds extending to more than two years — the obvious consequence of hopes and dreams being placed on ice.
There is a further manifestation of the pressure tenants are under. With energy prices rising astronomically there has been a 36% rise in the number of inquiries for all energy bills to be included in rental agreements, taking the pressure off individuals to battle with a series of rising costs by lumping them all into one housing payment. This requires some serious negotiations with landlords if they are to take on all of the unknowable risks of rising utility bills. Still, there is a price for everything, particularly peace of mind when it comes to budgeting. So in a less-than-ideal situation, most tenants and landlords are muddling through, working around rather than being helped by government action.
Nevertheless, with rents rising so quickly, there is always the risk of misdirected official intervention. Calls for rent controls will only grow louder. The issue is that the most commonly proposed form of price control is for annual rent increases to be capped. As the Rightmove survey demonstrates, however, regular rent increases are by no means the norm, even in the face of rising mortgage costs for landlords. Attempting to mandate a ceiling on annual increases might simply make regular rent increases more commonplace, unintentionally further squeezing loyal tenants. The last thing the private rental market needs is well-intentioned but misfiring government action: The example of Berlin, where capped rents have proved to be an unalloyed disaster, is worth bearing in mind.
Bloomberg Economics estimates that the cost-of-living crisis will add on average 2,370 pounds per year to UK consumers’ household bills. As ever, the effects on the most vulnerable — who are less likely to own their dwellings — will be worse, keeping them in leased accommodation and making home ownership even more elusive.
So for the time being, there's no place like home as far as sitting tenants are concerned, and that suits their landlords just fine too. In terms of the government's leveling-up strategy, though, it undermines aspirations to rebalance the economic playing field: In the current economic environment, no one is going anywhere fast.
Bloomberg
