Residential Outlook Q1 2020
As new landlord instructions and rent expectation figures drop to their lowest ever levels, how will rents be impacted later in the year?
The national rental market is subject to the same restrictions as sales, with Government advice ruling out all but essential moves.
The March RICS survey reported its lowest ever figures for new landlord instructions and rent expectations, as shown in Figure 1 below. The movements in the RICS measures broadly indicate the trends in national rental growth, so the latest data suggests small falls in rents could be seen later this year.
Note: RICS data lagged 3 months
Other data sources also point to less rental activity and potential falls in rent. Zoopla recorded a fall in demand of 57% from March 7th to 30th as the lockdown took effect, but noted a partial recovery off that low base, with a 30% rise over the two weeks to April 14th. They also reported that average daily numbers of new listings for private rentals were around 60% lower than the same period last year. Rightmove’s Q1 2020 Rental Price Tracker reported that rental searches dropped 35% immediately after lockdown started, then recovered slightly to sit 20% below their baseline.
The ability of some tenants to pay their rent in full is likely to be limited during the pandemic. Large numbers of people will have seen their income fall due to the furlough scheme, sick pay, reduced hours or redundancy. The ONS Business Impact of Coronavirus (COVID-19) Survey (BICS), covering 23rd March to 5th April, reported that around three-quarters of the more than 6,000 enterprises surveyed were still active. But less than 70% of employees in these businesses were working as normal.
The ONS have also surveyed the public (Opinions and Lifestyle Survey) regularly through the crisis. The latest results (covering 9th to 20th April) found that 29% of respondents said their household finances were being affected – up from 27% two weeks earlier. Of these, a large majority reported reduced income as the reason.
The Government has introduced longer notice periods for tenants under the Coronavirus Act 2020, but financial support for them has been limited. The Government guidance on private renting merely asks landlords to be ‘flexible’ if their tenants are experiencing financial issues. This is likely to result in lower rents being paid across the market in the short-term, but the scale of reductions and whether the shortfalls are made up will depend on any long-term hit to renters’ incomes.
An added complication with the outlook for the private rental market is how the short-term and holiday lettings markets interact with the existing rental stock. It is likely that tourism and travel, particularly international, will be subject to restrictions after some aspects of the initial ‘full’ lockdown are lifted. News reports and anecdotal evidence suggest that properties that would normally be short-term lets are ‘flooding’ the rental market in popular tourist areas, including London, Edinburgh, Bath and Brighton – and at a discount too. Time will tell if the size and duration of this phenomenon will have a lasting effect on rental supply and pricing across the country.