A surprise drop in London rents shows the extent to which people have been put off moving to the capital during the cost-of-living crisis, experts have warned.
Data from insurer HomeLet this week showed that the average cost of renting a home in Greater London fell by 0.2 per cent in December.
Although this represented just a £4 reduction from the typical £2,011 bill faced by tenants in November, it was the first price cut in 10 months and comes at a time of high inflation and rising interest rates.
Separate figures from estate agents Chestertons showed that the volume of landlords cutting their asking rent was up 50 per cent in November.
James Forrester, managing director of estate agents Barrows and Forrester, said demand for property in the capital had been dampened by economic realities.
“Many tenants are struggling with the increased cost of living and this has temporarily deterred them from moving to major cities where rental prices are often far higher – nowhere more so than London,” he said.
“At the same time, those already renting have largely decided to sit tight on existing tenancy agreements with fixed rents, rather than risk a move and incur an increase in monthly rental costs.
“The resulting dip in demand has naturally led to a reduction in top line asking rents as landlords look to entice tenants.”
Chestertons reported increasing supply of rental properties, another factor that could ease the cost of tenancy. The agency said there were 50 per cent more homes available to let in the capital in November 2022 than a year earlier.
Richard Davies, chief operating officer at Chestertons, said the Covid-19 pandemic had “artificially” slashed supply.
“The aftershocks of this unusual period are finally coming to an end and we believe that London’s rental market is now showing signs of stabilising, with more rental properties coming onto the market and an increasing number of landlords being realistic on the rent they are prepared to accept to minimise any void period,” he said.
Rents remain historically high
Andy Halstead,â¯chief executive at HomeLet, said December had marked the first nationwide drop in average rent prices in 2022.
But he added: “Even in the face of a minor dip, rental prices remain historically high, including December 2022 being only the second month on record in which the average Greater London rental property has been priced higher than £2,000 per month.
“Our prediction for 2023 is that rental prices will likely continue to rise, despite spiralling costs for tenants in other areas of their lives. Tenants struggling to pay their rent is sadly likely to become a recurring theme across the country and, in turn, this could lead to some landlords vacating an already struggling market. This will likely result in a continued shortage of rental properties to meet demand.”
Matt Hutchinson, director of SpareRoom, said the flatshare portal’s own data suggested rents had flattened out in the capital in the last two months of last year.
“There is an imbalance at the moment between an all-time high in demand and a 10-year low in supply,” he said.
“There is potential for prices to come down because they’ve shot up so much. But if they fall by a pound or two that won’t feel like a fall to people who’ve seen them go up 22 per cent in a year.”
He added that January’s data would be closely watched to see how much the traditionally busy moving month is impacted by post-Covid demand.
“There are two potential scenarios – one that the spike in demand has calmed, the other that it was a pause for Christmas and will bounce back. But there is only so far rents can go up and remain affordable.
“Rents in London were unaffordable for many tenants even before last year’s spike in demand. Unless demand falls and we see a significant increase in supply, it’s hard to see rents coming down much, even if they do fall.”
Marc von Grundherr, managing director of estate agents Benham and Reeves, said economic gloom was weighing against post-lockdown boom.
“There remains a strong appetite for good quality rental properties within the capital and this is being largely driven by overseas students, as well as Hong Kong British National Overseas visa holders, who are adopting a try-before-they-buy approach when settling in the UK,” he said.
“As a result, we’re yet to see any significant downward trends impacting London rental values at ground level and we expect this to remain the case over the course of the year.”
‘Rents have been out of control for decades’
Siobhan Donnachie of the London Renters Union insisted landlords were “still pushing rents through the roof”.
“Our members are facing unfair rent rises as high as 40 per cent,” she said. “Last year, the wild west of London’s private rental market hit record levels of unaffordability, but rents have been out of control for decades.
“Left unchecked, many landlords will take the first opportunity they can to artificially inflate rents even further. If the government does not introduce a rent freeze now, more renters will be forced to cut back on food and heating, or forced out of their homes."
Dan Wilson Craw, deputy director at Generation Rent, said soaring rents had caused “misery” for prospective movers.
“But that post-pandemic shift has come to an end, fewer people are moving into the capital and rents are now at the limit of what’s affordable, especially with inflation running so high,” he added.
“We wouldn’t expect rents to get much higher, but it’s still a horrific situation if you’re looking for a new tenancy. That’s why we need to be building many more homes to relieve demand and bring rents down in the long term.”
A spokesperson from the National Residential Landlords Association described pressure on the London rental market as “intense”.
“Landlords are still facing significantly higher costs than in previous years and many are having to decide if they are able to remain in the market. If, as many expect, landlords begin to sell in significant numbers the imbalance between demand and supply will only worsen,” they said.
“Now is the time for the government to make it easier to invest, which will help address this acute problem and promote growth. If this crucial step isn’t taken, tenants will continue to see costs increase and yet more obstacles blocking their efforts to become homeowners in future.”
