An in-depth analysis from Zoopla has reported the trends in the affordability of private renting across the UK since 2007.
The study is focused on working households where almost 75% of private renters work full or part-time and tracks the average rent for a 1-3 bed property over time, which is expressed as a percentage of average weekly net earnings for a single full-time worker.
Rents track earnings in long run
At a national level, rents have ranged between 28% and 32% of average earnings over the last decade. The current proportion of earnings spent on rent is 30% - exactly in line with the long run average. Zoopla also found wide regional variations in rental affordability, which it says is a result of different levels of rental growth.
Rental growth has varied widely across Great Britain since 2007
The analysis shows that factors such as migration, employment growth and the relative affordability of home ownership have influenced rents and rental growth in Great Britain. Rents have grown the most in the East of England (23%) and the West Midlands (20%) since 2007.
London and the South East, however, have seen the highest absolute average rents, with both registering rental growth of 18% since 2007 – although growth has weakened in the last two years.
In contrast, rents have grown by just 1%, 5% and 9% in the North East, North West and Yorkshire and the Humber respectively in the same period.
Northern regions the most affordable for renting
Weak rental growth has resulted in private rents in the northern regions of England becoming the most affordable since 2007, averaging between 25-27% of the average full-time regional wage. The momentum for rental growth has been forced by weaker employment growth and lower barriers for renters to access home ownership, Zoopla says.
Rental affordability improves in London
Rents in the capital grew swiftly up until 2014 as employment levels expanded and in-migration increased, but rental levels have subsequently stagnated. Today, average rents in London are on par with rent levels in 2014 – a result of weaker employment growth and stretched affordability limiting what tenants can afford to pay on rent.
Interestingly, rental affordability in London peaked in 2017 at 43% of average earnings and has fallen back to 39%, in line with the long run average for the region.
Rental affordability improves across southern England
In 2018, the South East and the East of England saw the proportion of earnings spent on rent reach close to 35%, nearly a 10-year high. However, stretched affordability has stunted rental growth and affordability improved in these two regions during 2018.
Occupancy of rented housing an under-researched factor
The Zoopla analysis is based on a single earner’s income but recognises the fact that more than one income is used to service rental costs. In the more expensive and desirable markets, there is evidence that renters are prepared to share to live in such locations. This makes tracking rental affordability more complex.
The report highlights that two earners per rented home were considered, this would reduce the rental affordability measure from 39% to 25% of average net earnings.
“The private rental market is a complex and diverse tenure which has been the focus of a growing number of policy chances with further changes being proposed,” Richard Donnell, research and insight director at Zoopla, commented.
“The reality in the rental market is that landlords are ‘rent takers’, having to accept what renters in the market are able and can afford to spend.”
He said that just like the sales market there is no single UK rental market, and rents have not increased rapidly in all markets, with the analysis creating a ‘varied picture’ for the affordability of renting.
“An under-researched part of the market is the level to which greater sharing of property has contributed to higher rents, particularly in inner London, which makes accurate assessments of the affordability of renting more complex,” he continued.
“Weaker, new investment, by private landlords also means slower growth in new rental supply, which supports overall rent levels. In London, there are localised concentrations of new build supply where availability of high-quality rental supply will increase in 2019, boosting choice for renters.”
Donnell added that, at a national level, the proportion of earnings spent on rent has remained relatively stable, as renters can only allocate a certain amount of earnings on rental payments.
He concluded: “The supply of rented homes is an important driver of rental levels and affordability for renters. Continuing to attract long-term, stable investment that continues to boost the supply of quality rented housing is important for the longer-term health of the private rented sector.”