London prepares for rental market boom

London rents are expected to rise significantly over the next ten years as the supply of housing in the capital fails to meet the needs of people working in the city, according to new independent research paper Renting in London: the coming boom, written by Professor Michael Ball, University of Reading, for Cluttons.

The Government forecasts a rise in household numbers in London of between 34,000 and 38,000 annually up to 2028, however, 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 21,000. This will result in a significant housing shortage, with people either paying more, crowding into existing homes or being priced out of the city, until effective demand matches supply.

Currently almost two thirds of households rent in inner London and 40% in outer areas, roughly equally divided between private and social housing. Tenants are attracted by the flexibility of the private rented sector and are often unable to buy due to high house prices and tight lending criteria.

The supply deficit offers attractive opportunities for residential 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.  Professor Ball forecasts an average rent increases of 5% annually over the next ten years, exceeding house price growth of around 4% per year.

Lynn Hilton, Partner for Residential Lettings at Cluttons, commented on the research:

“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.”

The research paper, ‘Renting in London: the coming boom’ was written on behalf of Cluttons by Professor Michael Ball from Henley Business School at the University of Reading.

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