Rental supply continues to fall across the UK as landlords exit buy to let market
Rents in the UK’s private letting sector continue to rise as the supply to let has dropped again, according to the latest survey from the Royal Institution of Chartered Surveyors (RICS).
Overall 9% more respondents reported seeing a fall rather than rise in new landlord instructions. This is the eighth consecutive quarter in which this indicator has recorded a negative number.
RICS says that the lettings data continues to underline the impact of tax changes on supply of property to rent and that the fall in supply reflects the shift in the buy to let market in the wake of these changes which are still in the process of being implemented, as smaller scale landlords exit the sector.
It adds that it is significant that the drop in new lettings instructions is evident in virtually all parts of the country to a greater or lesser extent.
While the supply of fresh rental stock to the market is increasingly constrained, the tenant demand indicator remains resilient. The upward momentum appears to have slowed, but the number of tenants looking for a new home remains in positive territory at a headline level.
The report points out that one consequence of this imbalance is that expectations for rental growth, and rising rents for consumers, appear to be strengthening again. Over the next 12 months rents are projected to increase by a little short of 2% nationally, but the shortfall in supply over the medium term is expected to force a cumulative rise of around 15%, based on three month average of responses, by the middle of 2023. East Anglia and the South West are viewed as likely to see the sharpest growth over the period.
Meanwhile, there has been little change in UK sales market and RICS says that the underlying message is little different from that reported in June. The headline price balance edged up from 3% to 4% in July and the newly agreed sales net balance remained close to zero for the fourth month in a row.
The survey continues to suggest a stronger market in Scotland, Northern Ireland, much of the north of England, the Midlands and Wales in terms of prices and activity while in London it was little changed over the month with the results for both the South East and East Anglia consistent with very modest price declines.
The new instructions measure also signalled a flat picture, following two months of very modest increases. The June survey signalled some doubts as to whether the pipeline of new supply would continue to improve in the light of the feedback on appraisals being conducted by valuers.
This was upheld as the appraisal balance in July was once again firmly negative. As a result, the view is that supply on the books of estate agents is likely to remain close to historic lows. The impact of this is visible in both the 12 month sales and price expectations net balances. While the former recorded a reading of -7%, its most negative number since October last year, the latter was much firmer at +25%.
‘The impact of recent and ongoing tax changes is clearly having a material impact on the buy to let sector as intended. The risk, as we have highlighted previously, is that a reduced pipeline of supply will gradually feed through into higher rents in the absence of either a significant uplift in the Build to Rent programme or government funded social housing,’ said Simon Rubinsohn, RICS chief economist.
‘At the present time, there is little evidence that either is likely to make up the shortfall. This augers ill for those many households for whom owner occupation is either out of reach financially or just not a suitable tenure,’ he added.