No end in sight to supply drought in prime London

One of the high end lettings agencies dominating the prime London rental landscape says there’s no end in sight to the supply drought in the capital.

Knight Frank says demand has far outstripped supply in London’s rental market over the last two years now. 

To put that in stark numbers, average rents in prime central London grew by 50 per cent in the 24 months to April 2023. In prime outer London the equivalent increase was 41 per cent.

Meanwhile, there were 42 per cent fewer new lettings listings in the two years to April than the previous 24 months across both markets, Rightmove data shows.

Knight Frank’s Tom Bill, head of residential research, puts it this way: “Simply put, strong demand as the economy re-opened was not matched by supply. A number of landlords took advantage of a robust sales market during the pandemic and left a sector that had become more financially punitive for them in recent years. 

“They have been subject to a series of tax and legislative changes as politicians from all parties have attempted to deal with the politically sensitive issue of UK housing and the affordability pressures faced by first-time buyers.

“The most recent example is a plan to make owners obtain planning permission to turn their properties into short-term lets. As landlords leave the sector, the result is that the affordability pressures faced by buyers have spread to tenants.”

Bill says that as the General Election moves closer, housing is likely to remain a key area of concern for voters. 

“Rent controls is one policy that has been floated as a way of easing the pressure on tenants. However, the unintended negative consequences are likely to multiply if the example off other countries is any guide, and more landlords leave the sector. It is perhaps why the Labour Party appeared to back away from the idea of rent controls last month” says Bill.

In the meantime, annual rental value growth remains stubbornly high. Average rents rose by 16.4 per cent in prime central London in the year to April while the figure was 13.9 per cent in prime outer London. 

New lettings listings in PCL and POL were 2.3 per cent higher in the six months to April compared to the equivalent period a year ago, Rightmove data shows. Meanwhile, the number of new prospective tenants registering was 9.0 per cent lower over the same period.