The two years between July 2020 and July 2022 mark the largest erosion of tenants’ buying power over any period since the launch of the Hamptons lettings index in 2013. Strong rental growth has meant that tenants’ budgets don’t stretch as far as they used to. This means that tenants are having to trade-down and lose a bedroom in order to spend the same amount of money on rent as they did in 2020. Often this means they face compromising on what and where they rent next.
Between July 2020 and July 2022, average rents in Great Britain rose by 16.2% or £165 a month. In July 2022, the average studio (£817pcm) cost the same as an average one-bed 27 months ago; the average one-bed (£929pcm) cost the equivalent of an average two-bed 24 months ago and finally the average two-bed (£1,068pcm) cost what the average three-bed cost 16 months ago. This typically means that what the average tenant is paying in rent today, would have bought them an extra bedroom two years ago.
Tenants in the South West have seen what they get for their money fall faster than anywhere else. Here, tenants saw their spending power eroded by the equivalent of a bedroom over just 16 months due to rents rising by 18.7% or £169pcm. Scotland followed over 17 months and the North West over 19 months. At the other end of the scale, it took an average of 30 months for Welsh tenants to see their money shrink by the equivalent of a bedroom.
Prior to the last 24 months, it had taken six years (or 74 months) for average rents to rise by an amount equivalent to the cost of a bedroom, with the largest increases in Northern England. This means the same rent will buy tenants an average of two fewer bedrooms than eight years ago.
Rents across Great Britain rose by an average of 8.3% over the last 12 months, marking a gradual slowdown from late spring when rental growth peaked at 11.5%. This means that rents are 15.7% above where they were when Covid struck. Despite the rate of growth slowing for the third month in a row, July’s figure still marks the sixth strongest annual increase recorded during the last decade.
Growth has also been driven by a recovery in rents being achieved for smaller urban homes. One-beds rose by an average of 10.4% year-on-year, while four-beds recorded growth of 6.6% annually. This reflects the market playing catchup from the slower recovery in city centre rents following Covid. The average one-bed now costs 13.6% more than pre-Covid times compared to four-beds that are 17.6% above pre-Covid levels.
Inner London continues to record faster rental growth than anywhere else in the country by a significant margin. Here, rents are up 33.6% on the same time last year. This rapid rate of growth reflects the post-Covid trough it’s being compared against. This will work its way through in a couple of months, likely bringing down the year-on-year figure significantly. As such, it leaves average rents only 1.5% above where they were in January 2020 and still on par with July 2016.
There are some signs that the rental stock slump is close to bottoming out, but the number of homes available to rent continued to fall in July. There were 9% fewer rental properties available in July than the same time last year and 52% fewer than two years ago. London recorded the sharpest fall in stock anywhere in the country, down 37% year-on-year. Stock levels are now so low that July saw more homes come onto the market than there were homes still on the market from previous months, the first time this has happened since our records began in 2012.