It’s been clear for some time the rate of rental inflation (how much rents are rising by) has eased, in real terms, over the last year. I discussed this in my recent tenant fees ban post. My recent research shows rents, in some parts of the UK, have actually dropped for the first time in over eight years.
Rents in Colchester for new tenancies fell by 0.4% over the last 12 months (i.e. not existing tenants experiencing rental increases from their existing landlord). Comparing the current rate with the historical rental inflation in Colchester an interesting pattern emerges:
- 2016 Rental Inflation in Colchester was 5.1%
- 2015 Rental Inflation in Colchester was 9.4%
- 2014 Rental Inflation in Colchester was 3.2%
The reasons behind this change depend on which side of the supply/demand equation you are looking from.
On the supply side of the equation (the landlords point of view) there’s the uncertainty caused by Brexit. 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 3% stamp duty tax for landlords in the first part of 2016. This meant a lot of new rental properties were ‘dropped’ onto the rental market all at the same time. The greater choice of rental properties for tenants curtailed rental growth/inflation. A slight softening of Colchester property prices also compounded this. Figures from The 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.
On the demand side (the tenants point of view) Brexit has also created uncertainty. For the first time in three years salaries are not keeping pace with inflation. This means tenants have less disposable income to pay their rent. It’s also interesting to note that nationally rent accounts for 29% of a tenant’s take home pay (Denton House).
The lead up to the General Election in May didn’t help. People don’t like doubt or uncertainty but hopefully with the election behind us tenants will no longer delay making decisions to move home.
Although Brexit negotiations will rumble on the simple fact remains we’re not building enough properties in Colchester, the East of England nor the UK as a whole. Long-term population trends imply rents will soon be growing faster than inflation again. Here’s the projections from the Office of National Statistics.
|Population Estimates for Colchester Borough Council Over the Next 20 Years|
Tenants will still require a vibrant and growing rental sector to deliver housing options in a timely manner. As the population grows in Colchester, and beyond, any restriction to the supply of rental properties (brought about by poor returns for landlords) is not in the long-term best interest of tenants. The bottom line is rents must go up!
I see the easing of rental inflation as a short term blip and believe rents will continue to rise over the years ahead. Although rents are a large monthly expense it still only accounts for 29% of a tenants’ disposable income, the ability for most tenants to absorb a rent increase does exist.
If you would like an informal chat about rental inflation or any aspect of the Colchester property market give me a ring on 01206 862288 during office hours or email firstname.lastname@example.org. I’m also available to offer a free opinion on Colchester properties for sale. Send me the Rightmove or Zoopla links you’re interested in and I’ll get back to you, often within 24 hours.