Tenants Prepared To Pay More Rent For London Property
Rental prices in the UK have been rising steadily for some time and rents in London have risen by 12% over the last year and look set to continue rising for years to come.
Central London residential rents rose 3% during the third quarter of 2012 and rental prices are predicted to rise even more over the next ten years as the supply of housing in the capital fails to meet the needs of people working in the city.
The Government forecasts a rise in residential household numbers in London of between 34,000 and 38,000 annually up to 2028, however this estimate is over ambitious according to some forecasts.
The author of a new report claims that based on development levels over the last ten years, an optimistic estimate of the number of homes which will actually be delivered each year is just 21,000.
The Government estimates were exposed in a new independent research paper, commissioned by Cluttons, called ‘Renting in London: The Coming Boom’, written by Professor Michael Ball.
Professor Ball says that the supply deficit offers attractive opportunities for residential property investors to provide long-term rented accommodation for those living and working in London. Although market cycles may affect yearly returns, income yields are expected to rise along with significant capital growth. He also forecasts average rent increases of 5% annually over the next ten years, exceeding house price growth of around 4% per year.
The research paper’s conclusion predicts a significant housing shortage, with people either paying more, crowding into existing homes or being priced out of the city.
Currently almost two-thirds of households rent in inner London and 40% in outer areas, roughly equally divided between private and social housing.
The lettings market in London continues to strengthen, as demand is still far outstripping supply. Transaction levels in terms of rental deals done rose by 31% compared to the second quarter and 8% more than the same period in 2011.
The average rent increase of renewing tenants in London during the 3rd quarter of 2012 was 4%.
Residential lettings partner at Cluttons, Lynn Hilton, said: “The private rented sector feels the strong pressures of a growing population and workforce, being both the first point of contact and the safety option for many people searching for housing. New jobs being created in London are increasingly for well-paid and highly qualified staff. Those tenants in the higher income groups, including families, will be a growing component of the rental market, seeking good-quality accommodation over longer periods. The pressure of demand from tenants wanting to live in the city will underpin rental growth at a level ahead of the historic long-term trend.”
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