Competition for rental properties remains very high, with 21 people now competing for each available property according to Zoopla's latest Rental Market Report. While rental growth for new lettings has slowed to 5.4%—half of what it was a year ago—it still exceeds the growth in average earnings, which is currently at 5.1%.

In July 2024, average rents reached £1,245 per month, up by £63 compared to the same period last year. This upward pressure on rents is largely due to a continued shortage of supply, driven by a decline in investment from private landlords.

Although the number of rental homes has increased by nearly 20% compared to last year, it remains 24% below pre-pandemic levels. Despite a reduction in demand due to fading pandemic effects, falling mortgage rates, and tighter visa rules reducing migration for work and study, competition remains high—more than double pre-pandemic levels.

The report also highlights that a lack of new investment in the private rental sector has contributed to a 30% rise in rents over the past three years. Many landlords have continued to sell off their properties since 2016, with over 12.5% of homes listed for sale on Zoopla in July 2024 previously being rental properties.

Higher mortgage rates have accelerated this trend over the past two years, adding to the tax and regulatory changes that have been impacting landlords since 2016. The government's Renters' Rights Bill, while not yet fully implemented, is already being factored into landlords' decisions on whether to exit the market. Speculation about potential tax changes in the upcoming Autumn Budget may prompt further sales of rental properties, which could further reduce supply and push rents higher.

While rental growth has slowed in London (2.5%) and other major UK cities (5.8%), smaller cities and towns across the UK, where rents are lower, continue to see above-average increases. Some of the fastest-growing rents are in affordable areas adjacent to larger cities, with six postal areas recording annual rent increases of 10% or more. In Scotland, Kilmarnock (13%) and Kirkcaldy (12%) have seen the largest increases, though rents there remain 25-35% lower than in Glasgow. Rent controls in Scotland have also contributed to these increases.

In England, rents have risen rapidly in areas such as Wolverhampton (12%), Oldham (11%), Darlington (10%), and Walsall (10%). These areas benefit from strong transport links and proximity to larger cities with higher rental demand.

Richard Donnell, executive director at Zoopla, noted: "The slowdown in rental inflation is being drawn out by a lack of homes for rent and continued strong demand, driven by the unaffordability of home ownership. Rental inflation is slowing in some major cities where rents are high but they are still increasing quickly in more affordable areas. Any new policy or tax changes that result in a reduction in supply will simply push rents higher, hitting low-income renters hardest. It is essential policymakers focus on growing the stock of homes for rent as the primary route to slowing rental inflation and improving choice for renters. As things stand, the growing unaffordability of renting is the only route to slower increases in rents."

Marc von Grundherr, director of Benham and Reeves, added: "There remains an incredibly high demand for good rental accommodation, and we simply don’t have the supply reaching the market to satisfy this demand. As a result, properties are being let at an extremely quick pace and this supply and demand imbalance is driving rental values ever higher. Unfortunately, this is a problem that looks set to persist, with the government introducing the Right to Rent bill this week, with tax changes also expected in the Autumn Statement, both of which are likely to deter landlord investment. In doing so, the level of quality rental accommodation is only likely to reduce further, and whilst the landlord exodus may be somewhat exaggerated, we’re already in need of more homes at present, and so any further reductions in stock will only cause the rental crisis to worsen."

As the rental market continues to face supply constraints, renters are likely to experience further pressure in the coming months unless significant increases in rental stock materialize.