Written by Lisa Proffitt | 26th January 2023
In the third quarter of 2022 there were 26% fewer homes available to rent than the pre-pandemic average (Rightmove data). Not only that, but the monthly RICS (Royal Institute of Chartered Surveyors) survey shows that rental demand has increased every month since May 2020. So what can we expect to happen to prices in the rental market in 2023?
Prediction for rental prices in 2023
Over the past two decades, the number of households privately renting has more than doubled to around 5 million according to Census 2021 Housing, England and Wales - Office for National Statistics) and this record breaking demand is not matched by supply. As a result average rents across the UK rose 10.8% in the year to December 2022 and were 14% higher than their pre-pandemic level (data from HomeLet Rental Index | Average Rent UK |Rental Price Index 2020 | HomeLet Rental Index).
The mismatch between demand and supply is likely to keep the rental market strong in 2023 with the next 12 months following the pattern of last year. RICS has forecast a rise in rental prices of up to 15% this year.
Would-be first-time buyers who can no longer afford the property they want, or who are keen to wait for calmer conditions before proceeding, may decide to stay renting for longer, which pushes up demand and rental prices. This high demand for rental properties benefits landlords in three ways: shorter void periods, a greater choice of tenants and higher rental prices.
London rental market
Average London rents were 9.8% above their pre-pandemic level by August 2022. In the capital a premium market rent is more than double that of any other region. During 2022, 90% of all new rentals of £3,500 per month or more have been in the capital, of which 65% were apartments. Across the remainder of England and Wales, 94% of such rentals were houses.
Investor demand for rental properties is strong
We can expect to see an increase in deliberate landlords in 2023. Investor demand for purpose-built homes for rent remains strong and property investors will take advantage of price adjustments in the housing market to secure stock. Returns on property investment look resilient compared to other investment assets which suggests that rental supply will start to rise.
Will landlords get more details on rental reforms in 2023?
Landlords had expected an update on proposed rental reforms by the end of 2022 but details on three key policies - scrapping Section 21 evictions; introducing a Decent Homes Standard for private rental properties; and encouraging increased pet ownership among tenants - are still lacking. So although it’s unlikely that any of these policies will become law in 2023, more details regarding them may be released. Of those three proposed rental reforms, scrapping Section 21 evictions is said to be the government’s top priority.
Energy efficiency to remain high on the agenda
Given the sky high cost of gas and electricity, improving energy efficiency and keeping bills down is a priority for both landlords and tenants. The government is planning to increase the minimum Energy Performance Certificate (EPC) rating for rental properties from ‘E’ to ‘C’. Simply Business research found that 55% of landlords would need to make improvements to their property if the minimum EPC rating was increased, costing those landlords upwards of £5,000. No date has been fixed for introducing these new rules.
The government’s new ECO+ scheme is pledging £1 billion to help owners of properties with low EPC ratings and in lower council tax bands increase their energy efficiency. Around 80% of the funding will be made available for households with an EPC rating of D or below and in the lower Council Tax bands.
Will 2023 see a crackdown on short-term lets?
The short-term lets market has exploded in recent years and the government is under pressure to introduce some regulation. Critics of short-term and holiday lets argue that they take away long-term housing from private tenants, which results in higher average rents. Plus, short-term lets landlords don’t have to meet the same level of legislation as those renting out properties in the traditional lettings market. The government are currently looking into whether properties let on platforms like Airbnb should require planning permission and recommendations are expected to be made by the end of this year.
If you’re a landlord or a prospective tenant, book a valuation of your property now or call us here to speak to one of our Lettings experts who will be delighted to offer their free, no obligation advice.