Rapid rental growth has seen tenants in Great Britain pay a total of £31.0bn in rent during the first half of 2022. This means they are set to pay £63.0bn by the end of 2022, a record high and the first big jump in five years. Almost all the rise stems from record-breaking rents which have been driven by a lack of homes on the market alongside investors passing on higher running costs to tenants. To put this figure into context, first-time buyers spent £84.0bn last year.
Rising prices mean the total amount of rent paid by tenants has more than doubled since 2008 while surpassing the 2017 peak, despite there being around 275,000 fewer private tenants than there were five years ago. During the first half of 2022, tenants paid £750m more in rent than H1 2017, and £17.3bn more than in H1 2008.
The rising rental bill has been driven by Generation Z (born between 1997-2012) flying the nest. This generation has seen a tenfold rise in what they pay in rent over the last three years meaning they now hand over a fifth of all rent paid. Generation Z paid a record £5.8bn during H1 2022, a figure likely to hit £11.7bn over the whole year, meaning for the first time they will pay more rent than Baby Boomers (born between 1946-1964).
Generation Z’s rent bill is rising at a faster pace than when the previous generation, Millennials (born between 1981-1996), started to leave home during the 2008 downturn, with far fewer buying their own place. And on their current trajectory, they are likely to be paying more than Millennials within the next three years.
Meanwhile all other generations spent less on rent than last year. Millennials, who make up the current largest generation of tenants, paid £2.4bn or 18% less in rent in H1 2022 than in H1 2021. The Millennial rent bill has fallen by nearly half (49%) from 2017 as many renters between their mid-20s and early 40s bought their first home. Despite tumbling homeownership rates over the last two decades, it is likely that Millennials collectively will be paying less rent than their predecessors, Generation X (born between 1965-1980) by next year.
But the pace at which the older generations’ rental bills have reduced, shows that after around a decade, declines tend to slow. Typically, if someone hasn’t bought by the time they are 40-45, they become substantially less likely to buy later in life. This means Generation X renters who have yet to buy, are increasingly less likely to do so. Meanwhile the total amount of rent paid by Millennials is likely to bottom out within the next five years.
Historically the total rent bill of each generation has peaked at around double the last, driven up by both rising rents and falling homeownership rates. This would suggest that on previous trends Generation Z’s rental bill is on course to top out at around £70bn in around six or seven-years’ time. However, with homeownership rates remaining relatively stable over the last six years, it is likely that their total rental bill will peak below this figure as more purchase their first home.
Rental growth
Rental growth rates slipped back slightly during the early summer months. Average rents across Great Britain rose 8.8% over the last 12 months, representing a slowing of growth from the 11.5% recorded in May. The average monthly rent now stands at £1,163, up from £1,069 at the same time last year.
For the second month running, rents in London grew faster than anywhere else, rising 12.1% over the last 12 months taking the average monthly rent above the £2,000 mark for the first time ever. Inner London rents recorded a record annual growth rate of 35.1% as their strong recovery from the pandemic continued at pace. Despite record growth, at a monthly average of £2,675, rents in Inner London remain 6.5% below their October 2019 peak and sit just 1.6% above where they were in January 2020.
Across Great Britain, the number of rental homes on the market remains well down on pre-pandemic levels, with 54% fewer homes on the market than in June 2019. However, stock levels are now slowly rising across Southern England (excluding London) compared to this time last year. And there are 10% more homes to rent in the country than last June, albeit an increase from record lows.
