Rents fall as supply outstrips demand
Rising supply and waning demand for a place to rent firmly put the brakes on prices in Q4 2008, according to the first SpareRoom.co.uk Rental Index, which analyses over 40,000 rental listings.Economic slowdown hits rents
Average UK rents fell 0.5% in the last quarter of 2008 after a year of steady quarter on quarter growth. Annually, rents increased 4.0%, but with economic weakness driving supply higher and dampening rental demand, rents are likely to stay under pressure.
Rental values for three bedroom houses fell 0.3% in Q4 2008, with average rents slipping to £1,077 per month from £1,080 in the previous quarter. But, flats were hit harder by the drop in demand and by a much larger supply boost, with the rental value for two bedroom flats down 1.4% on average, to £760 per month.
The biggest quarterly fall in rents was evident in Wales, where rental values were down 2.8% on average. The North East, Yorkshire and West Midlands bucked the trend, with average rents growing slightly in the period.
Matt Hutchinson, director of research at SpareRoom.co.uk, said: “Demand for homes to rent has begun to slip in recent months. More importantly supply is on the up, meaning landlords must work doubly hard to find a tenant. There’s now significantly more competition amongst landlords and rent levels are coming under pressure.”
Demand-supply balance indicator
In relation to supply, demand for rental properties dropped significantly in the final quarter of 2008 compared to the same period in 2007. In October 2007, there were 5.6 seekers for every rental space but this fell to 3.4 in October 2008. By December 2008 this had fallen to 2.1 seekers for every flat or house on offer compared to 3.7 in December 2007.
Matt Hutchinson explained: “December is always a weaker month as moving is not on people’s minds at Christmas, but this December showed particularly low interest from tenants. A number of factors are affecting demand for rental properties. The number of overseas workers coming to the UK has plummeted owing to the weak pound and a tough jobs market. Crucially, companies are no longer moving employees around the country to the same extent, a key driver of the market. Added to this, 27,000 more homeowners took in a lodger last year to cope with pressures on household income and meet mortgage repayments. We expect at least another 35,000 households to take in a lodger this year, adding to the supply.”
He adds: “This is more than a seasonal trend. The combination of factors means we can expect demand to outstrip supply for the foreseeable future – and rents are likely to be under pressure for some time. There has been a surge in enquiries from seekers in January, but we expect it to be a tough year for landlords and they should be realistic with their asking prices.”