UK Estate Agents Say Rents to Keep Rising as Landlords Sell Up

UK estate agents report the most significant decline in rental property availability since April 2020, with the Royal Institution of Chartered Surveyors' gauge of new lettings plunging to minus 37. This widespread reduction is attributed to landlords exiting the market amid prospects of higher taxes and tighter regulation. Consequently, rents are forecast to increase by another 3% over the next year as tenants face heightened competition for a dwindling supply of homes.

Analysis

The UK rental market is facing a significant supply contraction, with the Royal Institution of Chartered Surveyors' (RICS) gauge for new lettings falling to minus 37 in August, its lowest level since the pandemic-induced standstill of April 2020. This decline is not driven by a lack of demand, but rather by landlords actively exiting the market in response to anticipated adverse policy changes, including higher taxes and tighter regulations. The direct consequence of this supply-demand imbalance is a clear upward pressure on rental prices, with the RICS survey forecasting a further 3% increase over the coming year. This situation highlights a structural shift in the buy-to-let market, where regulatory and fiscal pressures are directly reducing the availability of rental housing and inflating costs for tenants.

Key Decisions for Investors

• Investors with holdings in UK residential REITs or other large-scale landlords that are maintaining their portfolios should anticipate upward revisions to rental income forecasts, given the supply shrinkage and projected 3% rent growth.
• It is crucial to monitor the specific details of the forthcoming tax and regulatory legislation, as the negative impact on landlord profitability could eventually outweigh the benefits of rising rents, creating a significant risk for buy-to-let asset valuations.
• Consider the secondary macro-economic effect on UK consumer-focused sectors, as a sustained rise in rental costs will likely erode household disposable income, potentially creating headwinds for consumer discretionary companies.