A chronic mismatch between supply and demand has been the defining feature of the private rental market for three years. 

UK rents for new lets have risen by a third – or £3,360 a year – in this time.

Rental growth has now peaked and Zoopla expects a major slowdown in 2024. Demand will moderate in the face of worsening affordability and as supply of rental homes improves slightly.

There are already signs that rents in some markets have been set too high as renters show resistance to higher rents.

UK rents have risen 9.7 per cent in the last year, compared to 11.9 per cent growth the year before. However, current growth is still higher than earnings growth of 7.9 per cent.

Rental growth has slowed the most in London, from 17.0 per cent a year ago to 9.0 per cent now. Rents in other regional cities are holding up because renters can still afford increases based on average earnings.

Rents in Scotland are up 12.9 per cent which is higher than the 11.4 per cent last year. 

Landlords north of the border are setting higher rents to allow for the government’s three per cent per year cap during the tenancy. 

This shows how rent controls can be counterproductive.

Zoopla says there are four main reasons for strong rental demand in the last three years:

• 1. The reopening of the economy and international travel after pandemic restrictions lifted in mid-2021;
• 2. The strength of the labour market and good employment growth;
• 3. Higher mortgage rates since autumn 2022 making home ownership more expensive; and 
• 4. Record levels of immigration and particularly high numbers of overseas students.

But there are signs the combined impact of these factors is starting to plateau.

The portal’s Rental Index shows that demand has been steadily slowing in the second half of 2023. The number of rental enquiries per home for rent is down year-on-year, after peaking in summer 2022.

Zoopla insists that we’re not going to suddenly see supply levels meet demand any time soon. But the market will become more balanced than any time in the last three years.

A key sign of demand and the impetus for rental growth is how much asking rents are reduced to attract a tenant.

The number of homes having their asking rent reduced is now at the same level as the second half of 2020. That was when the pandemic hit rental demand, supply expanded and rental growth slowed.

There are the most asking rent reductions in London, with 10 per cent of listings reduced by five per cent or more in November 2023. 

The rest of the UK excluding London is at seven per cent, the highest for more than five years.

This shows the strong rent growth since 2020 is now meeting resistance. In many cases, renters cannot afford to pay higher rents.

Asking rents are being reduced in all price bands, with a spike in the £1,000 to £1,500 per month bracket.