Record net migration last year is one of the main drivers of rent price spikes, according to experts.
Meanwhile, the supply of rental housing stock has failed to respond to the population growth because of high interest rates, policy changes, and slow growth in home building.
Kristian Niemietz, head of political economy at free market think tank the Institute of Economic Affairs, said the government has to “find the courage to stand up to NIMBY [not in my backyard] interest” and build more homes.
Mike Jones, executive director of Migration Watch UK, argued that ministers need to cap the numbers of immigration.
According to the latest figures released by the Office for National Statistics (ONS), private rental prices reached new records in August across all four nations. The prices had increased steadily since records began in 2015, but the growth became much faster after the UK reemerged from COVID-19 pandemic lockdowns.
While the growth of all rent prices accelerated in the past two years, it was outpaced by the spikes in the prices of newly let homes, according to ONS analysis of figures from private sector brokers including Homelet, Zoopla, and Rightmove.
While price inflation has begun to slow in recent months, it remains high above historic levels.
The total supply was 35 percent below the 2019 level while demand remained 41 percent up from the pre-pandemic level, Rightmove said.
Migration Drives Recent Demand Spike
Mr. Niemietz told The Epoch Times that a number of factors have been driving up the demand for housing over the years, including rising incomes, smaller households, and rising life expectancy, which contributes to population growth.“So we have more single people, more single parents rather than, say, what used to happen a generation ago that you'd have more multi-generation households,” he said.
“All of that leads to increases in demand, but the biggest factor is simply rising incomes. When people get richer, they demand more housing space. And when that housing space isn’t there, they bid up the price for what little housing space there is,” he added.
However, another key part of the more recent price spike came from immigration-driving population growth.
“The strength of the labour market and job creation is a key driver of rental demand, as is record levels of immigration,” according to Zoopla.
“This was particularly apparent a year ago as international borders re-opened with an influx of overseas students returning to study in the UK. The number of renters chasing each property for rent spiked to a record high over the summer of 2022, ” the report said.
During the COVID-19 pandemic, migration was largely halted because of closed international borders. The reopening of the British border coincided with the government’s new post-Brexit point-based immigration system and a number of humanitarian visa programmes tailored for Hongkongers wishing to escape communist rule, Ukrainian women and children fleeing Russia’s invasion, and Afghans who were at risk under the Taliban.
“You have heightened levels of migration and a housing supply side that cannot respond to that. Now, of course, if you have a sudden increase in the population, that would cause problems in any housing market,” Mr. Niemietz said.
David Fell, senior analyst at property broker Hamptons, told The Epoch Times it’s difficult to pick out how much of the increased demand came from immigration.
He said while some new immigrants would buy homes, between 80 to 90 percent of them would enter the rental market upon arrival.
Sluggish Supply
The number of rental homes in the UK has remained fairly stable since 2016. Although renters are now paying much more than they used to, the market didn’t attract many new landlords because of rising mortgage costs, Mr. Fell told The Epoch times.Since December 2021, the Bank of England has raised rates 14 consecutive times, from 0.1 percent to 5.25 percent, driving up mortgage rates.
While rising rates in the past year have “have made the rental market a lot more expensive than it used to be,” for buy-to-let landlords, the costs of letting properties have been “going up significantly” and returns from elsewhere, such as savings accounts, “probably beat the returns they’ve been getting from property,” Mr. Fell said.
According to Savills, around 40 percent of the rental market was owned by mortgaged buy-to-let landlords in the second quarter this year.
Mr. Fell said Hamptons hasn’t seen huge numbers of landlords leave the market but the impact of rising costs “has really been on the number of new landlords coming in.”
He also said some landlords have become “a lot more nervous” about government policy changes as the Renters (Reform) Bill, which is aimed at protecting tenants’ rights, goes through Parliament.
There are “obviously” good things in the bill, but some landlords are “worried about how easy it will be to evict a tenant who doesn’t pay the rent or who damages the property,” Mr. Fell said.
“So I think some landlords have become a lot more nervous about who they let to, and I think for some tenants, perhaps who don’t earn large amounts or don’t have a sort of guarantor, it’s certainly become a lot harder to find a property,” he added.
Mr. Fell highlighted the government’s plan to raise the minimum energy efficiency required for rental homes, which may see some landlords spending up to £10,000 to replace their gas boilers with heat pumps.
Prime Minister Rishi Sunak has since announced that he won’t force households to install heat pumps. It’s unclear how the U-turn will affect rental homes. The Epoch Times has reached out to the Department for Energy Security and Net Zero for clarification.
Dan Wilson Craw, deputy director of Generation Rent UK, said that eviction figures suggest more landlords have been selling their properties although it doesn’t necessarily lead to a decline in supply.
“It’s not clear who’s buying those homes. It’s very possible that it’s other landlords, in which case we should be doing more to encourage sales with sitting tenants, to avoid unnecessary evictions,” he told The Epoch Times in an email.
Deregulation and Home Building
Zoopla said growing rental supply is “the most efficient and sustainable way” to bring rental prices back down.“However, levels of home building and net new investment by private landlords are falling and set to remain weak into 2024, due to the impact of higher borrowing costs,” it said.
While the current market heavily relying on private landlords, Mr. Fell said he believes new supplies will come from build to rent, but it will take a number of years for it to help.
“I think, longer term, more rented homes will be provided by those big companies. But I think it’s going to take a good few years to get there and I think where we’re probably 5 or 10 years, perhaps, behind the [United States] in that respect,” he said.
He also said it would help to improve “the regulatory environment for landlords” to make things “a bit easier” for them.
Mr. Niemietz said he expects things to “get worse” until a government can “find the courage to stand up to NIMBY interest.”
“Because what we have at the moment is, politicians [are] always talking about ‘we want to build more housing’ in the abstract. But as soon as there’s a bit of resistance, as soon as there’s some NIMBY campaign in some marginal seat somewhere, they immediately get cold feet, and then abandon all their reform plans again, and they just don’t have the stamina to to see it through,” he said.
Apart from building homes, Mr. Craw said there are things to be done such as “reforming property tax to encourage people living in homes with a lot of spare rooms to downsize and free up space for growing families.”
Demand-side Solution
Migration Watch believes the government needs to control immigration, which has been the main driver for the UK’s population growth since the 1990s.The analysis said the impact of the housing shortage would be eased if net migration can be capped at 100,000 per year.
“Ultimately, the government have to establish an annual limit on the number of people coming to work and study here that brings the inflow roughly into line with the outflow of people returning home or emigrating,” Mr. Jones said in an email to the Epoch Times.
Asked about the need of labour to maintain economic growth and mitigate population ageing, Mr. Jones said immigration can’t really solve the pensions problem because they “grow old too.”
“In countries like Britain, management of ageing must depend on non-demographic measures,” he said.
Mr. Niemietz said although curbing immigration will “go some way to towards” easing the pressure on rents, it’s “a clumsy way to do it.”
Under the new point-based immigration problem, “pretty much everyone who comes in under that system is contributing something to the economy,” he said, adding that stopping these immigrants would incur an economic cost.
“And I'd say ... it’s not a smart idea to impose that economic cost on you just to keep a few NIMBYs happy. So I [would] tell the NIMBYs to get stuffed,” he said.
