Supply Constraints and Future Outlook
The outlook for London’s rental market remains constrained by an enduring supply-demand imbalance. Despite a modest increase in rental properties, supply remains a third below pre-pandemic levels. With low investment in new rental housing and continued high demand, this imbalance is unlikely to improve significantly in the near future.
The slowdown in new investment by private landlords, driven by tax changes and rising interest rates, has further exacerbated the supply shortage. While corporate landlords have partially offset this decline, overall growth in the rental housing stock has stalled. The total number of privately rented homes in Great Britain has remained static at 5.4 million since 2016, highlighting the urgent need for policy interventions to address the structural issues facing the sector.
Sustained Demand and Limited Growth
The outlook for the UK rental market remains one of sustained demand but limited growth in the immediate future. Despite a steady flow of rental properties being sold, amounting to approximately 31,000 per quarter, the overall stock of rented homes is expected to remain essentially unchanged. This is due to the continued low investment by private landlords, offset only partially by the gradual increase in corporate landlord investment.
Demand for rental properties shows little sign of significant moderation in the near term. Key drivers, such as a strong labour market, high student housing demand, and challenges first-time buyers face, are expected to persist. Additionally, the lack of affordable housing options for those in acute housing needs continues to exert pressure on the rental market.
While the labour market has recently softened and first-time buyer activity has declined due to higher mortgage rates, these factors have been counterbalanced by increased immigration to fill job vacancies and a growing number of overseas students. As mortgage rates gradually decline in 2024, a recovery in first-time buyer activity is expected, but many potential buyers will likely remain in the rental market, awaiting further interest rate reductions.
Overall, while some moderation in rental demand is anticipated as pandemic-related factors subside, the fundamental drivers of demand and the ongoing shortage of affordable housing suggest that the rental sector will continue to experience sustained demand on multiple fronts.