Rents are through the roof, but think tank cites surprising causes

Proactive Investors – The Resolution Foundation has allayed private landlords of blame for rising rent prices, instead pointing the finger at earnings growth and “post-pandemic readjustment”.

In a report titled ‘Through the Roof’, the independent think tank, citing ONS data, showed that private rent prices have risen by 15% since January 2022 and are rising at their fastest pace on record.

Pushing back against “popular theories about the rise”, the foundation suggested that the private rental sector (PRS) has seen only a modest decrease in size, suggesting that landlords leaving the market en masse are not driving up rents significantly.

Rising costs for Buy-to-Let mortgages have been suggested as a factor for the rent hikes, but this doesn’t fully explain the trend as 38% of landlords have no debt, the report said.

It stated: “Some have been keen to pin the blame for recent rent rises on the rising costs of servicing Buy-to-Let mortgages, which landlords have passed on to tenants.

“Many landlords will have wanted to recoup those higher costs (although it should be noted that 38 per cent of landlords hold no debt), but it’s just not the case that the UK’s landlords can unilaterally set prices: although there are clear power imbalances in landlord-tenant relationships, the ability of landlords as a whole to increase prices is constrained by the wider rental market.

“If this weren’t the case, then landlords would have been increasing rents long before the recent rise in interest rates.”

Looking forward, while rent growth for new tenancies is expected to cool, the overall rent paid by renters is predicted to continue rising, potentially outstripping earnings growth.

The report suggests a convergence back to the pre-pandemic rent-to-earnings ratio by the fourth quarter of 2026. This means overall rents could see 13% growth over the next three years, compared to the 7.5% earnings growth expected.

Regardless of the determining factors, there is little doubt that escalating rent prices will heap further pressure on households following the bruising cost-of-living crisis.