Rental affordability is at its highest in the North of England for a decade but renting a home is the most unaffordable on London, the latest lettings market research has found.
Rents are set to rise with earnings, demand is strongest in the South East and occupancy numbers are often overlooked when considering rental affordability, says the property market analysis report from property portal Zoopla.
On average, 30% of net earnings is spent on rent today which is in line with the average over the last decade. It points out that tenants can only afford to allocate a certain proportion of their earnings to rent, so there’s a close relationship between affordability and earnings.
Stretched affordability and slower employment growth have kept London rental prices close to 2014 levels, demonstrating that earnings have an important part to play in rent control, it says.
This means that landlords cannot control rental prices, as rental levels are a function of earnings growth. ‘Although this may seem like bad news for landlords, property remains an attractive investment to those looking for assets that can match liabilities linked to earnings growth or inflation,’ it adds.
London and the South East have experienced weaker growth over the past two to three years and the report says that this is down to stretched affordability, slower employment growth and, more recently, weaker in-migration.
However, despite affordability being stretched in London compared with the rest if Britain, it has in fact improved over the last three years. Earnings have increased, while rents have been going down, naturally regulating affordability.
Rental growth in the Midlands and Wales has outpaced most of the rest of the UK with growth between 17% and 20%. Conversely, growth in the Northern regions averaged just 3% between the fourth quarter of 2007 and the fourth quarter of 2018.
Despite vast differences in rental growth across Britain, affordability is manageable across all regions and at a national average, rent as a proportion of earnings has tracked between 28% and 32%.
‘There is potential for further rental growth in regional markets where affordability remains attractive and levels of employment are rising. Affordability is more of a constraint to the rental growth in southern England although the high cost of home ownership will continue to support rental demand and limit any downward pressure on rental growth,’ the report concludes.
