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Predictions for the rental market in 2018

By Guest Blogger on in Industry News, Renting

Predictions for the rental market in 2018

By Tom Gatzen, Co-Founder of Ideal Flatmate

With renting becoming the new norm for London’s millennials and the government continuing to fall far short of its self-made targets for new homes being built, what does the future of renting look like in the Capital over the next 12 months?

Rents cooling down, but for how long?

Despite fears that the rental market would overheat in 2017 given the continuing pressures on demand, prices actually held relatively stable. Figures from the Royal Institute of Chartered Surveyors (RICS) included in the 2017 Residential Market Survey pointed to a slowdown in the growth of private rental prices in London, with the 12 months leading to October 2017 seeing growth listed at 0.8 per cent while for the 12 months leading to September 2017 it was listed as 0.9 per cent.

Experts expect London to continue to lag behind the rest of the country in terms of price growth during 2018, with English rentals as a whole seeing rises of over 1.5 per cent predicted. While undoubtedly good news for Londoners, any increase at a time of stagnant wages is nothing to get excited about, and rents in London are significantly higher than the rest of the UK anyway. Also, it remains to be seen how long this slowdown lasts for, and with RICS also predicting earlier this year that rents will increase by just over 25 per cent over the next five years, any respite may be short lived.

Regional disparities

A feature of the London market in recent years has been the wide disparity in terms of prices in different boroughs and sometimes even from one street to another. In parts of Camden, North London for instance, you could be looking to snap up a two bed for £650/month per room and then walk five minutes over to Primrose Hill where the prices are suddenly double.

A number of previously less celebrated areas of London have become ‘gentrified’ in recent years and have seen the resultant leap in rent and house prices. Brixton, Streatham, Shoreditch, Stoke Newington, Tooting and Peckham in particular are places to have seen big jumps leading to locals feeling aggrieved. As Crossrail begins to come online in 12 months’ time, we could see increases around the stations as new areas see greater interest from commuters. Places such as Abbey Wood, Acton, Ealing, Manor House and Woolwich are likely to see a larger rise in prices given their proximity to stops on the route.

Flatsharing continuing to grow

One trend set to continue is the rise of flatsharing, both in London and across the UK. While this was a way of living previously deemed suitable only for the young and student population, over the past 10 years it has become the normal way of living for young professionals and people into their 30s. Given societal changes with the increase in job turnover, people marrying and having children later and higher divorce rates, more people than ever are entering middle age living in a flatshare too.

I co-founded Ideal Flatmate, a flatsharing platform designed to match up compatible tenants, two years ago and the assumption was that our users would be students and young professionals. Our fastest growing user group in London however, is the over 35s, with 32 per cent of our users now falling within this category. Indeed, the average age of a flatsharer across the UK is now 32 and the fastest-rising age range is those between 45 and 54, which has grown by 300 per cent in the last five years. This trend is set to continue throughout 2018.

Growth in the Build to Rent sector

The Build to Rent sector, which is operated by companies or investment funds, and consists of large housing developments specifically built for renters, is set to continue its growth. Companies such as The Collective, Fizzy Living and Get Living have already entered the space to great effect, providing 1,000s of well designed, modern units. These operators see this model as the future of renting in large cities, where basics such as Wi-Fi, bills, TV are included in the room when moving in. With funds such as Legal & General set to enter the market in 2018 and more than 50,000 units under construction, the growth of the sector and its attractiveness to tenants is likely to be a key question to be answered over the next 12 to 18 months.

Tax changes for landlords?

A change from the Government we have been arguing for at Ideal Flatmate is for landlords to be given greater leeway to operate and for good landlords to be encouraged. Rather than penalising the entire sector, which puts landlords off from entering the sector and going the extra mile for their tenants, Ministers need to look at ways to encourage them to keep rents down and be proactive for their tenants.

A simple change which would have a huge impact would be for the Chancellor to reverse section 24 of the Finance Act 2015, which has imposed a pernicious tax on landlords where tax can exceed income (creating an infinite tax rate). No other business owner would be forced into this situation. It is unsustainable and is a key reason that rents continue to rise in the private sector. This is not, as some claim, going to line the pockets of landlords, but to help pay the astronomical bills they are now facing. Including securing HMO licenses which is likely to affect a greater number of Landlords in the near future. This may be wishful thinking but is a change that should happen in 2018.

Feature image credit: Malc McDonald