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Business Maverick

UK tenants facing double-digit squeeze in rents, outpacing pay

UK tenants facing double-digit squeeze in rents, outpacing pay
Estate agents "To Let" signs outside residential properties in the Selly Oak suburb of Birmingham, UK, on Tuesday, 20 February 2024. (Photo: Chris Ratcliffe/Bloomberg)

UK tenants are facing a double-digit surge in rental costs in the coming years as rocketing interest rates and demand for property makes securing a home more difficult.

Analysis by the Resolution Foundation found that average rents may rise by 13% over the next three years, compounding a cost-of-living crisis for Britain’s growing number of tenants. The growth in rental costs will be much faster than the expected earnings growth over the period, it warned.

The analysis suggests more strain on the finances of many Britons even as inflation falls rapidly toward the Bank of England’s 2% target. UK renters are concentrated among younger generations and face a further squeeze because high market rates for new tenancies point to higher costs when leases come up for renewal.

Resolution said the cost of new tenancies has grown by almost a fifth since the start of 2022, while the supply of rental homes coming onto the market is well below pre-pandemic levels.

“Those rises for new tenancies are starting to slow, but how much renters actually pay will continue to outgrow how much they earn for some years to come as those not yet exposed to higher prices are hit,” said Cara Pacitti, senior economist at the Resolution Foundation.

Britain’s housing crisis is one of the top issues for younger voters ahead of a general election expected later this year. Official data shows rents rising at their fastest pace on record in the UK. In London, many tenants cannot afford the deposit to get a foot on the housing ladder.

A further squeeze on renters will likely entrench dire polling numbers for Prime Minister Rishi Sunak’s Conservative party among Generation Z and Millennial voters. A YouGov poll last week showed support for the Tories in single digits for 18- to 24-year -olds, with almost 60% of those groups backing the Labour opposition.

The Resolution Foundation said the jump in rental costs will deal a major blow to families with the numbers privately renting almost doubling from 11% in the late 1990s to nearly 20% today.

The researcher pinned the surge in rents on a post-pandemic bounce back and faster rising wages.

Its estimate of a 13% increase, or a 4.2% a year rise, in rental costs assumes that average rents paid returns to their pre-pandemic level compared to earnings in three years’ time. That would outstrip the 7.5% increase in average earnings expected by the Office for Budget Responsibility over the same period, it said.

“With more families renting privately, and renting for longer too, these rent surges are a bigger problem for Britain, and require bolder solutions from policy makers,” said Pacitti.

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