Highest Demand for rental property in England for 5 Years

Property yield - Is Yield that Important?

According to recent research released by the National Residential Landlords Association (NRLA) demand for rental property in England has hit a 5 year high.

The NRLA (in conjunction with research consultancy BVA.BDRC) recently undertook a survey of private landlords in England and Wales.

Highest Raise on Demand for rental property for 5 yrs

The results make compelling reading, with 39% of landlords from the private rented sector reporting that demand for rental property increased in Q2 2021, an increase of 8% on the previous quarter of the year.

  • The research highlights that demand for rental property has reached a five year high (the last time a similar peak was seen was after the GFC in Q1 2012). Several factors can be attributed to this current increase in demand, including a relaxation of lockdown restrictions and a buoyant economic outlook. The report also highlighted:
  • Sentiment varied across geographical locations, with 60% of landlords in the south east, south west, Yorkshire & Humber and Wales reporting that tenant demand increased in Q2 2021 (compared to Q1 2021), compared with 15% of landlords in central London reporting the same. 
  • The number of landlords looking to purchase new buy to let property in Q2 2021 declined from 19% in Q1 2021, to 14% in Q2 2021. 

Chris Norris, Policy Director for the National Residential Landlords Association said  “The evidence is clear that nationally whilst the demand for homes to rent is increasing, landlords are more reluctant to invest in new properties. The only losers will be tenants as they struggle to find the homes to rent they need. The Chancellor needs to recognise the harm being done by tax hikes imposed on the sector.”

The article from the NRLA can be found here.

Highest Demand for Rental property in England, Wales in 5 years time
The data is released as an Experimental Statistic and is subject to revisions if improvements in the methodology are identified. Results should be interpreted with this in mind.

Rental Market in London

But what about the demand for rental property in London specifically?

In London, demand for rental property declined during the pandemic and accordingly, so did rents. This was large because there was nothing to do in the capital – it was effectively closed. In addition, a significant amount of rental homes stock which would normally be available for short-term lets on websites such as Airbnb was available for long-term lease. This created greater amounts of rental stock putting downward pressure on rents.

Trends contributing to the huge demand for rental properties:

There are several factors that have contributed to the highest demand in rental property for 5 years and it’s a combination of demand and supply-side factors.

Many landlords have sold their buy to let properties

Many UK based buy-to-let landlords are choosing to sell their buy to let properties now, now whilst the market is good.  Some landlords are exiting the market completely, whilst others are reducing the size of their portfolios.  This is due to market conditions, but more principally because of tax.

For UK resident landlords, especially those who are highly geared, the changes to how mortgage interest is recognised against costs, mean that a significant amount of income is eroded. As landlord’s sell, the volume of available rental stock is reduced putting upward pressure on rents.

Fewer New Properties to Rent

The new housing supply is now at its lowest point for several years, particularly in London. Many of the top tier housebuilders who would have typically built in the capital are focusing on developing outside of the capital. Whilst this leaves a gap in the market to develop a new property, the reality is the costs of developing new properties in London mean there are only a small amount of developers with deep enough pockets to build.

Additionally, because obtaining a new consent to build takes so long, (it can be years!) it is unlikely that new supply will come on stream quickly. Lower supply will of course put additional pressure on property prices and rents.

New apartments under construction in London - Fewer new properties to rent

The economy is opening

As the economy is opening up, so too is the demand for rental property in cities; you only need to make a journey on the tube in London to know that London is back open for business.

Today, the first day back to school for many children after the summer holidays, it was once again standing room only on the tube as commuters once again flocked to the capital.  Commuter trains operating in outer London boroughs and commuter towns and are also filling up, with commuters no longer having the ‘luxury’ of a guaranteed seat on the train.

London accounts for almost a quarter (23.8% Gross Value Added) of the UK’s economic activity. For those, It is simply unrealistic for one to assume that the infrastructure could simply be relocated elsewhere and that the capital will suffer from a brain drain.

Sure, there is are a certain amount of people who will always move from the capital due to changes in life circumstances. However, there is no doubt some will be able to work from home and may well move from out of town. But this natural attrition has always taken place in London, it seems somewhat irrational to assume this trend will now apply to anyone of working age. 

Holiday lets begin again

As travel and tourism closed down, many properties that were ordinarily available for short term rentals were put on the market for long terms lets. This exacerbated the downward pressure on rents at the start of the pandemic, by increasing supply at a time when demand for rental property was already decreasing.

As things return to normal and travel and tourism to the capital returns, much of this stock will once again become available for the short term let removing it from long term rental stock.

Canary Wharf - popular for tenants, demand for rental property

Latest Trends and Demand for Rental Property

There is no doubt that the way in which people work and more importantly where they will work from will change. This change has not occurred because of COVID it has simply accelerated the rate at which that change takes place. Part of this change means that people will have greater flexibility in where they can work and no doubt working from home will be part of that.

However, working from home doesn’t necessarily mean moving home. Areas such as the City and Canary Wharf – hugely popular with tenants before the pandemic, will become so again as we emerge from the pandemic.

We have been here before. Following the Global Financial Crisis people claimed the property market would not recover and that the real estate market was finished.

But, for those who were wise enough to have invested whilst the naysayers were advising otherwise, they benefited from significant capital growth. It’s my opinion that we will see the same thing happen with house prices in London now. For landlords or potential landlords, with rents in London back to levels seen before the pandemic and low void periods, London will be a smart option for investors.

Related articles:

Average rents in London increase by 25%-30%

Buying property for rental income? Consider Australia where you can depreciate your assets.

5 Property Investment Strategies you haven’t considered Buying off Plan

Email me if you’d like more information please email me at [email protected]

We hope you have found this article useful, feel free to comment or ask any questions.  For more information on property investment check out our other articles and request your copy of our Buyers Guides from [email protected].

Important notice:  Proptech Pioneer and its associated companies seek to provide investors with guides, information and tools, but we cannot guarantee this information to be accurate or perfect.  You use the information at your own risk and accept no liability if you rely on this information.   Proptech Pioneer is not a tax advisor, accountant conveyancer, lawyer, financial advisor or mortgage advisor.  You should seek independent advice from independent professionals before making any investment decision.