08 April 2024 , 09:28
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Rent hikes are set to outstrip wage increases in the coming years, a leading think tank has warned.
The Resolution Foundation forecasts that average rents could see a 13% rise over the next three years. Since January 2022, the typical cost of new tenancies has shot up by 18%, signalling that private renting isn't confined to the young, the Foundation notes.
The organisation, which aims to boost living standards for low and middle-income earners, suggests that rental prices have rocketed due to a post-pandemic rebound, as well as recent wage growth. The Foundation says some of the recent rental price hike is a "correction" following the pandemic.
During the health crisis, evictions and repossessions were put on pause, contributing to the current surge in rental costs. Moreover, the post-pandemic recovery has been exacerbated by an increase in earnings, with average wages climbing by 13% since early 2022.
Although the catch-up phase is deemed complete and salary increases are slowing down, it might take years for the rapid growth already witnessed to filter through the entire private rental market, the Foundation warns. It stated: "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."
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If average rents paid return to pre-pandemic levels compared to earnings in three years, rents could typically see more than 13% price growth over that period, outpacing the 7.5% earnings growth expected during that time, the report 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."