Zoopla Predicts Continued Rental Market Pressure Despite Slower Inflation Rate

The latest insights from Zoopla’s Rental Market Report indicate a deceleration in rent inflation, yet the forecast suggests tenants will continue to face an affordability crunch into 2024. Richard Donnell, Executive Director at Zoopla, highlighted the persistent imbalance between supply and demand as a key driver of ongoing rental challenges, with no significant improvement in affordability on the horizon despite a predicted easing in rental inflation rates.

Slowing Rent Inflation Offers Little Relief
Zoopla’s analysis reveals a drop in rent inflation to 7.8%, marking the lowest rate in two years and a significant decrease from the 11% inflation rate observed a year ago. Despite this slowdown, the average monthly rent across the UK stands at £1,223. Looking ahead, Zoopla anticipates rent inflation will further slow to around 5% through 2024, while average earnings growth is expected to decelerate to just below 4%, underscoring the ongoing squeeze on rental affordability.

Supply and Demand Dynamics
The report attributes the moderation in rental growth primarily to a slight improvement in the supply-demand imbalance. The average number of homes listed for rent by letting agents has risen to 12, which is 20% higher than last year but still 28% below pre-pandemic levels. Additionally, the average rental property now receives 15 enquiries, a decrease from the 40 enquiries seen per property in 2021, yet double the pre-pandemic figure.

In London, rent increases have moderated to 5.1%, a significant reduction from the 15.3% increase a year earlier. However, outside the capital, rental inflation remains largely consistent with previous years despite a softening in demand.

Persistent Challenges in the Rental Sector
Scotland stands out as the only region where rent inflation continues to surge, with a notable 11.6% increase. Donnell comments on the enduring issues within the rental market: “The last two years have been characterised by an ongoing imbalance between rental supply and demand. This has pushed rents for new lets 30% higher since 2021, adding to the cost of living pressures for renters.”

Despite the narrowing gap between supply and demand, the imbalance remains significant, with Donnell warning that rents for new lets are expected to keep rising through 2024, albeit at a slower pace. He further notes, “Rents remain at their most expensive compared to average earnings for over a decade. Only a rapid and sustained expansion in rented housing will start to improve affordability for UK renters,” stressing the need for increased housing supply to address rental market affordability challenges.