On several occasions over the last few months, in my Crawley
Property Blog, I predicted that the rate of rental inflation (i.e. 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 Crawley for new tenancies fell by 0.4% in the last
12 months (i.e. not existing tenants experiencing
rental increases from their existing landlord). When we compare that current
rate with the historical rental inflation in Crawley, an interesting pattern
emerges ..
·
2016 - Rental Inflation in Crawley was 5.1%
·
2015 - Rental Inflation in Crawley was 9.4%
·
2014 - Rental Inflation in Crawley 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 ‘dropped’ on to the rental market all at the same time. The greater choice
of rental properties for tenants curtailed rental growth/inflation. A slight softening
of Crawley 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 be ‘softer’ on those negotiations)
the simple fact is, we aren’t building enough properties for us to live in.
Both in Crawley, 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.
Tenants will still require a vibrant and growing rental
sector to deliver them housing options in a timely manner. As the population
grows in Crawley, 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 must 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.
