On
several occasions over the last few months in my Grantham 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 the UK, rents had actually
dropped for the first time in over eight years. Recent research backs up this
prediction.
Rents
in Grantham only grew by 3.3% in the last 12 months for new tenancy’s ( i.e. not
existing tenants experiencing rental increases from their existing landlord).
When we compare that current rate with the historical rental inflation in
Grantham, an interesting pattern emerges..
· 2016 -
Rental Inflation in Grantham was 7.9%
· 2015 - Rental Inflation in Grantham was 3.0%
· 2014 -
Rental Inflation in Grantham was 3.9%
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
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 account 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. This was compounded with a slight softening of
Grantham property prices. Figures from
Bank of England suggested 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 we have a mandate for going forward for the next 5 years, that has
removed the block tenants were having in order to make the decision to move
home.
Whether it ‘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 Grantham, the East Midlands 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 South Kesteven District Council over the next 20 years
|
||||
|
2016
(actual)
|
2021
|
2026
|
2031
|
2036
|
|
140,140
|
145,950
|
151,482
|
156,166
|
160,293
|
Tenants will still require a
vibrant and growing rented sector to deliver them with housing options in a
timely manner. As the population grows in Grantham 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
this, 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 disposable income of
tenants, the ability for most tenants to absorb a rent increase does exist.
