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Rental market does not work everywhere

Hometrack has segmented the rental market across the country, dividing it into mature, active and inactive markets.  Mature markets – with high concentrations of rental supply and strong turnover – are clustered in just 7% of the country and account for 29% of the UK’s rental stock.  These tend to be large urban areas – often university towns – where rental demand is at its greatest. 

In contrast, inactive markets account for 71% and contain 38% of the UK’s private rental housing stock.  Inactive markets are defined by areas where rental demand is at its lowest and landlords run the risk of long periods of voids.

Richard Donnell, Research Director, Hometrack comments, “These are important considerations for developers, local authorities and investors to be aware of when looking at local housing needs and when setting rental levels.  Our analysis shows that there is little point in building homes to rent in locations where a viable rental market simply doesn’t exist.”

London stands alone as the city with the greatest concentration of rental properties.  It has the largest pool of demand and as a consequence commands some of the highest rents in the country.  The average rent for a two bedroom home in the capital is three times higher than elsewhere in the UK. 

Similarly over 50% of market rented homes in the capital are fully occupied.  Donnell again, “The luxury of a spare room is a thing of the past for many London tenants.”  To put this into context, a fifth of owner-occupied homes in London are fully occupied.  Across the rest of the country occupancy levels for private rented homes are three times higher than for owner-occupied properties.

In some areas of the country the cost of renting is higher than buying. Away from London tenants unable to raise a deposit to buy, are paying a monthly premium of between 5-10% over the cost of purchasing a home.  In markets with high capital values, renting is still cheaper than buying.

Donnell concludes, “There is little doubt that affordability constraints will continue, at least in the medium term, to act as a barrier to owner-occupation.  However, developers, investors and local authorities alike need to be aware of the bigger picture and understand that the rental market far from being uniform, differs greatly across the country.”

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