Rental market predictions over the next 5 years

It appears the new decade has had a positive start!

As analysed in our article here– Rightmove has seen an increase in asking prices; RICS are witnessing confidence amongst its members; and the two leading mortgage providers are seeing an increase in house price values through its mortgage transaction data – and so it would appear the decisive result of the 2019 General Election has brought some much needed confidence into the market.

But the inevitability of growing house prices is that younger, and particularly the lower paid will still struggle to become homeowners.

The planned ‘new homes’ initiative which will see a 30% discount for key workers and first-time buyers will be of limited help to the estimated 2 million people who earn the minimum wage.

Indeed, even with promised investment in social housing, the reality is that schemes take many years get off the ground. Plus, not everyone who rents a home can - or indeed wants to - live in a home provided by the local authority.

And so, it is universally predicted that demand for private rented homes is set to increase further as we move further into the new decade.

The increase in households in the Private Rented Sector over the last decade was phenomenal – the most recent official statistics showed a staggering 63% increase in the number of households from 2.8m households in 2007 to 4.5m households in 2017.

Many estimates are that approximately half of landlords own just a single property, with less than 20% owning five or more; meanwhile an estimated 94% private rented homes are rented out by individuals as opposed to companies or organisations. 

Landlords tempted by the impressive double returns from both rents and capital growth in property prices are set to experience even greater returns from their investment.

That’s because many believe that rental prices are set to grow in the next 5 years, with some predicting growth could be as high as 15%.

As rental supply isn’t growing at the same rate the population is increasing, then some tenants may decide to pay a little more to secure their perfect home.

Therefore, what remains is a ‘perfect storm’ for rental prices; increased demand, reduced supply and a necessity for landlords to cover their increased costs. At Darlows, we don’t wish for rents to grow beyond what tenants can and should pay. However, as the property sales market bounces back following a sustained period of caution particularly in 2019, then this is positive news for the property market.

After all, landlords need to feel they can make a reasonable return from their portfolio – and with increased pressure on demand, and these positive market trends are great for investors.