On several
occasions over the last few months, in my Southampton Property Blog, I
predicted that the rate of rental inflation (i.e. how much rents are rising by)
had eased over the last year. At the same time I felt that in some parts of the
UK rents had actually dropped for the first time in over eight years. Recent
research backs up this prediction.
Rents in Southampton
for new tenancies fell by 0.4% in the last 12 months (i.e. not existing tenants experiencing rental increases from their
existing landlord). When we compare that current rate with the historical
rental inflation in Southampton, an interesting pattern emerges ..
·
2016 -
Rental Inflation in Southampton was 5.1%
·
2015 - Rental
Inflation in Southampton was 9.4%
·
2014 - Rental
Inflation in Southampton was 3.2%
The reason
behind this change depends on which side of the demand/supply equation you are
looking from. On the demand side (from the
tenants point of view) there is the uncertainty of Brexit and the fact that
salaries are not keeping up with inflation for the first time in three years.
Critically this means tenants have less disposable income to pay their rent. As
an aside, it is interesting to note that nationally, rent accounts for 29% of a
tenant’s take home pay (Denton House).
On the
supply side of the equation (landlords
point of view) Brexit also creates uncertainty. However, the biggest issue
was a massive upsurge of new rental properties coming on to the market in late
2016, caused by George Osborne’s new 3% stamp duty tax for landlords in the
first part of 2016. This meant a lot of new rental properties were ‘dropped’ on
to the rental market all at the same time. The greater choice of rental
properties for tenants curtailed rental growth/inflation. A slight softening of
Southampton property prices has compounded this. Figures from The Bank of England suggested that
first time buyers rose over the last 12 months as some were more inclined to
buy instead of rent. Together, these factors played a part in the ongoing moderation
of rental growth.
The lead up
to the General Election in May didn’t help: after all people don’t like doubt
and uncertainty. So now that we have a mandate for going forward over the next
5 years hopefully that has removed any stumbling blocks stopping tenants making
the decision to move home.
Whether it be
‘hard’ or ‘soft’ Brexit negotiations (and with the Election result the Tory’s
might have to be ‘softer’ on those negotiations) the simple fact is, we aren’t
building enough properties for us to live in. Both in Southampton, the South East
and the wider UK, long-term population trends imply that rents will soon be
growing faster than inflation again. Look at the projections by the Office of
National Statistics.
|
Population
Estimates for Southampton City Council over the next 20 years
|
||||
|
2016
(actual)
|
2021
|
2026
|
2031
|
2036
|
|
250,806
|
259,036
|
267,464
|
276,670
|
283,321
|
Tenants will
still require a vibrant and growing rental sector to deliver them housing
options in a timely manner. As the population grows in Southampton, and wider
afield, any restriction to the supply of rental properties (brought about by poor
returns for landlords) cannot be in the long-term best interest of tenants.
Simply put rents must go up!
The fact
is that I see this as a short-term blip and rents will continue to grow in the
coming years. With rents only accounting for 29% of a tenants’ disposable
income, the ability for most tenants to absorb a rent increase does exist.
For more information on the Southampton property market, visit the Southampton Property Market Blog If you are looking for an agent that is well established, professional andcommunicative, then contact us to find out how we can get the best out of your investment property.
Email me on brian.linehan@belvoirlettings.com or call on 023 8001 8222.
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