Property Market Insights

How affordable is renting in Great Britain?

April 2019
How affordable is renting in Great Britain? – key takeaways
Findings
Rental affordability at a national level is currently in line
with the 10 year average of 30% net earnings spent on rent
– rental affordability is stable/decreasing in most regions.
Rents in London and the South East have out-performed
other regions since 2007 but growth has stalled over the
last 2-3 years – stretched affordability and rising supply have
reduced the upward pressure on rents.
Rents in the northern regions of England are the most
affordable for a decade – averaging 25% to 27% of net
earnings for a single earner.
The occupancy level of rented housing is an important and
under-researched factor. London rents look unaffordable for
a single earner, but assuming 2 earners affordability metrics
appear sustainable.
Rents track earnings over the long run – this is a key
attraction for corporate and institutional investors. Recent
experience in London suggests that rents adjust when
affordability becomes stretched.
Implications
Rents are set to rise in line with earnings (c3% per annum) in the medium term – rents will
under-perform in local or regional markets when there is a sudden or sustained increase in
supply or when affordability becomes stretched for renters.
Overall levels of demand for rented housing will remain strongest in London and the South
East where the costs of accessing home ownership are highest – stretched affordability and
lower in-migration will reduce the upward pressure on rents. Bulk sales of new homes to
corporate investors will further increase supply, limiting growth prospects.
Regional markets have the greatest upside for rental growth – this will only materialize if
demand increases as a result of in-migration and employment growth. These regions have
lower costs for renters to become first time buyers, whose numbers are rising. This erodes
overall rental demand and will limit the upward pressure on rents.
Occupancy assumptions have a material impact on affordability analysis – this is important
for investors considering new rented housing schemes, policy makers accurately assessing
the real affordability of renting and lenders assessing buy to let mortgages.
Talk of rent controls or the need to ‘stabilise’ rents needs to be put in the context of rental
growth and affordability. A balance is needed between fairness for renters and stability of
rental supply and the need to attract long term investment into an expanding and important
housing tenure.
Introduction
The demand for, and supply of, private rented housing has expanded over the last decade. Private rents have
increased but to different degrees across local housing markets. This report uses Zoopla’s long run regional rental
Definitions:
indices to explore the development of rents and rental affordability over the past decade.
Key findings: The Zoopla rental index
A mix adjusted index of median
• Total rental growth since 2007 has varied between +1% and +23% across regions. This is down to variations in rents weighted to reflect the stock
employment growth as well as the affordability of home ownership. Year on year rental growth at a regional of private rented housing for 1,2
level currently ranges from 0.4% in the East of England to 5.3% in Yorkshire and Humberside. and 3 bed homes which account
• Renters will allocate a certain proportion of earnings to paying rent. Our analysis finds that the proportion of for >90% of rental supply. The
net earnings spent on rent has remained broadly stable over the last 15 years – ranging between 28% and source data is rental listings data
32%. When affordability becomes stretched, rental levels will typically adjust. where Zoopla has the most rental
listings of any UK portal.
• London remains the least affordable region in which to rent, although affordability has improved over the last
2 years. The most affordable areas to rent are the northern regions of England where rents are the most Rental affordability
affordable for a decade. Expressed as gross rent as a
proportion of average net earnings
• There remains potential for further rental growth in regional markets where affordability remains attractive
for a single person. Allowance is
and levels of employment are rising. 80% of first-time buyers move from renting so the dynamics of renting
made to reflect higher levels of
and buying have an important influence on rental demand. Lower costs of accessing home ownership in
occupancy in private rental
regional markets are likely to limit the pace of rental growth in regional markets in 2019.
property in southern England.
• Affordability is more of a constraint to rental growth in southern England although the high cost of home
ownership will continue to support rental demand and limit any downward pressure on rents.
 Index of private rents and earnings for Great Britain since 2007

Figure 1 – Index of private rents and earnings (GB)

130 • Figure 1 is an index of average rents and earnings in Great Britain
GB rents are 12% higher from Q4 2007, the market ‘peak’ in the last housing cycle.
Oversupply of
125 than pre-recession peak
rental properties • Over the long run rents track earnings with households allocating
Index 2007Q4=100

results in average
120 rents falling by 7% a certain proportion of earnings towards rental costs. There are
between 2007 and periods when rental growth diverges with the growth in earnings.
115 2009
• The largest divergence between rents and earnings followed the
110 global financial crisis (GFC). This led to a 7% decrease in average
Rents in GB returned monthly rents between Q4 2007 and Q4 2009. This resulted from
105 to pre-recession
an oversupply of rental properties, largely as a result of “accidental
levels in early 2014
100 landlords” who rented out properties they were unable to sell.

95 • It took seven years, until 2014, for rents in Great Britain to return
Average rent (GB) Average earnings (GB) to pre-recession levels. Eleven years on from the GFC, average
90 monthly rents in Great Britain are £676 pcm—12% higher than
their pre-recession peak
2008 Q4
2007 Q4

2009 Q4

2010 Q4

2011 Q4

2012 Q4

2013 Q4

2014 Q4

2015 Q4

2016 Q4

2017 Q4

2018 Q4
See table 1 and table 2 for an overview of rents and earnings
growth in Great Britain between Q4 2007 and Q4 2018.

Source: Zoopla Research, Office for National Statistics

Index of rents in London, South East and GB (ex London) since 2007

Figure 2 – Regional rental index • Figure 2 is an index of private rents for London, South East and GB
130 (excluding London).

125 Deceleration in growth • There was 10% decrease in average monthly rents in London and
London and South moves London rents the South East between Q4 2007 and Q4 2009. An important
Index 2007Q4=100

120 East register back to 2014 levels

above average driver of rental demand in London is the financial services sector
115 falls in rents. – 35% of all employees In London are employed in this sector –
110 plus in-migration from the rest of the UK and from overseas.
105 • It took until 2012 for rents in London to return to their pre-
100 recession peak and 2013 for the South East. Stronger
employment growth in these regions explains the increase in
95 Rents in London and South rents compared to other regions—rents in the North East, for
East return to pre-GFC peak
90 example, have not just returned to pre-GFC levels.
85 • Rents in London and the South East are 18% higher than in Q4
London South East GB (ex London)
80 2007. Both regions have experienced weaker growth over the
past 2-3 years. This is down to stretched affordability, slower
2007 Q4

2008 Q4

2009 Q4

2010 Q4

2011 Q4

2012 Q4

2013 Q4

2014 Q4

2015 Q4

2016 Q4

2017 Q4

2018 Q4
employment growth and, more recently, weaker in-migration.
• In London, average rents today are on a par with rental levels last
seen in 2014 (£1,250 per month).
Source: Zoopla Research, Office for National Statistics
Absolute regional rental levels 2007 and 2018

Figure 3 – Rental levels by region • Figure 3 compares rental levels in 2007 and 2018. Rental growth in
£1,400 £1,249 the southern regions has outpaced most of the rest of the UK—
2007 Q4
averaging 18% between Q4 2007 and Q4 2018.
£1,057

£1,200 2018 Q4
• The Midlands and Wales have registered above average rental
Average rent per month

£1,000 growth since 2007 with rents rising by an average of 17% and 20%.
£870

£773
Conversely, growth in northern regions has under-performed the
£739

£676
£800 national average increasing by an average of just 3%. Full details of
£664
£629

£593
£589
£582

£574
rent levels and rental growth are set out in the appendix.

£555

£531

£528
£503

£501
£493

£486

£475
£600

£461

£452
£450
£448
• Absolute rental values remain higher in London and the southern
markets than elsewhere. This is largely a function of employment
£400
and earnings growth as well as the high cost of accessing home
ownership which supports the demand for renting.
£200
• Another important drivers of rents in inner London is rising
£0 occupancy levels where renters share the cost of housing across
S West
London
S East

GB

E Mids

Y&H
N West

N East
East

W Mids

Wales
Scotland

more than one income.

See table 2 below for an overview of population, employment and

earnings growth in Great Britain between Q4 2007 and Q4 2018.
Source: Zoopla Research – rents are for 1-3 bed property
 Rental affordability over the last decade (GB)

Figure 4 - Rent as a share of net earnings (GB) • Figure 4 shows the long run trend in rental affordability.
40% Renters today allocate, on average, 30% of net earnings to
rent. This is exactly in line with the long run average.
35% 32%
• At a national level, rent as a proportion of earnings has
30% tracked between 28% and 32%. Tenants can only afford to
Rent as a share of net earnings

allocate a certain proportion of their earnings to rent. It is

25% 28%
therefore reasonable to expect rents to track earnings in the
Rent as a Affordability in
20% proportion of net line with long long-run.
earning peaks at term average
15% 32.2% in 2008 levels since 2015 • This long run relationship is highly attractive to investors
looking for assets that can match liabilities linked to earnings
10% growth or inflation. This is a key attraction for corporate
investors and institutions investing in rented housing via build
5% to rent schemes. It is also an important feature for private
0% landlords, almost half of whom are investing to supplement
their pension (MHCLG private landlords survey, 2018).
2007 Q4

2008 Q4

2009 Q4

2010 Q4

2011 Q4

2012 Q4

2013 Q4

2014 Q4

2015 Q4

2016 Q4

2017 Q4

2018 Q4
Source: Zoopla Research, Office for National Statistics
Affordability of renting across regions – annual averages 2007-2018

Figure 5 – Rental affordability over time by region • Figure 5 shows rental affordability at the end of each year
50% between 2007 and 2018. London is the least affordable region.
Rental affordability - % net earnings

45% Affordability levels remain above average in London— Affordability peaked in 2015 at 45% of net earnings. Rents in
we assume 1.3 earners per home in London so higher London have reduced slightly over the last three years while
40% occupancy ratios can reduce affordability further
earnings continue to grow improving affordability.
35% • Today renters in London are spending an average of 39% of net
30% earnings on rent. This assumes 1.3 earners per home.
25% Affordability drops to 25% assuming 2 earners per rented home.
20% • The three northern regions have rental affordability that is the
lowest for a decade. This is not surprising given the under-
15% Lines shows rental Rents the most
affordability each affordable for a performance in rents.
10% year between decade
2007 and 2018 • Despite recent fluctuations in affordability, two things hold true:
5% firstly, regional rental levels are a function of earnings growth.
0% Secondly, when the spread between rents and earnings becomes
S West
London

S East

E Mids

N West
W Mids
East

N East
Wales

Scotland
Y & H'side
too wide, rental levels will readjust. The adjustment in rents
would accelerate if supply increased significantly.
• This analysis suggests rental affordability appears manageable
across all regions. In London affordability continues to improve.

Source: Zoopla Research, Office for National Statistics – occupancy assumptions vary by region from 1.3x to 1.1x
 Rents and rental affordability across GB (2 bed)

Rental affordability for a

single earner renting a
2-bed property presents a
more adverse view of
affordability than may be
the reality. English
Housing Survey data
shows 45% of renters are
couples while 27% are
one person households.

Two earners sharing

would spend half the
amount shown in the
adjacent map. In areas of
unaffordability there tend
to be higher levels of
occupancy.

Source: Zoopla Research

Rents, rental growth and affordability metrics by region/country
Rent as % of net Rent as % of net
Average rent Average rent Rental value
Region earnings – average earnings -
pcm 2007Q4 pcm 2018Q4 growth 2007-2018
2007-2018 2018Q4
London £1,057 £1,249 18% 39% 39%
East £629 £773 23% 32% 34%
S East £739 £870 18% 31% 33%
S West £589 £664 13% 32% 33%
W Mids £493 £593 20% 29% 30%
Scotland £486 £574 18% 28% 29%
E Mids £475 £555 17% 27% 30%
Wales £448 £528 18% 28% 28%
N West £503 £531 5% 28% 27%
N East £450 £452 1% 27% 26%
Y&H £461 £501 9% 26% 25%
Great Britain £582 £676 16% 30% 30%
Source: Zoopla Research
Contact
For more information on this report and insight into the housing market contact:

Sophy Moffat – Research and Insight Lead

sophy.moffat@zoopla.co.uk

Richard Donnell – Research and Insight Director

richard.donnell@zoopla.co.uk
07725 822567