The Resolution Foundation has issued a stark warning that rent increases could outstrip earnings growth in the coming years. The think tank forecasts a potential 13% rise in average rents over the next three years.
Since January 2022, the cost of new tenancies has surged by 18 percent, signalling a shift where private renting extends beyond those in their 20s, the Foundation notes. It attributes this trend to a post-pandemic recovery, with halted evictions and repossessions during the crisis, alongside recent wage growth, fuelling the rental price boom.
The Foundation suggests some of the rental price spike is a “correction” following the pandemic. With average earnings having increased by 13 percent since early 2022, the rental market is experiencing a compounded effect.
Despite the completion of this catch-up phase and a slowdown in pay growth, it may take years for the full impact of the growth spurt to permeate the entire private rental sector, the Foundation warns. They added: “New renters will pay these new higher rents, while existing tenants reaching the end of a tenancy or forced to accept within-tenancy price rises will in future face large rent hikes.”
If average rents paid return to their pre-pandemic level compared to earnings in three years’ time, rents would typically see more than 13% price growth over that period outpacing the 7.5 percent earnings growth expected during that time, a report has said.
Cara Pacitti, senior economist at the Resolution Foundation, said: “Millions of families agreeing new tenancies across Britain have faced surging rents in recent years as we have emerged from the pandemic.”
“Those rises for new tenancies are starting to slow, but how much renters actually pay will continue to outgrow how much they earn for some years to come as those not yet exposed to higher prices are hit.”
“With more families renting privately, and renting for longer too, these rent surges are a bigger problem for Britain and require bolder solutions from policymakers.”
“Short-term solutions include regular uprating of Local Housing Allowance to support poorer families, and the ultimate longer-term solution is to simply build more homes.”
A Government spokesperson said: “Our Renters (Reform) Bill will give people more security in their homes and empower them to challenge poor practices.”
“Through our long-term plan for housing, we are investing £11.5 billion in the Affordable Homes Programme and remain on track to build one million over this Parliament.”
“We are supporting people with rising costs with £108 billion to help with bills an average of £3,800 per household, and we have increased the Local Housing Allowance rate so private renters on housing benefit or universal credit are on average nearly £800 a year better off.”
