The government was recently reminded that political ambition and economic reality can sometimes clash. Ahead of this month’s Budget, it was reported the government may not raise the money it hopes by changing the rules for non doms, the 74,000 individuals who live in the UK and don’t pay tax on their non-UK income. As a result, the Treasury is currently looking at a wider set of proposals that may encourage more of them to stay in the country.
Similar lessons may be learned in the rental market as a result of the Renters Rights Bill, which will tip the balance of power from landlords to tenants.
While the final shape of the Bill is unknown, the government will presumably be keen to avoid an outcome where the balance tips too far, which could put downward pressure on supply and upward pressure on rents.
Not that a wave of landlords is about to leave the sector.
Rightmove data shows the number of new listings in Prime Central and prime outer London in August was only 7% below the same month in 2019, the last year of relative normality in the lettings market. Meanwhile, there were 6% more new listings between January and August this year in PCL and POL than in 2023.
“The new rules are likely to cause some logistical problems for landlords, but we are not expecting an exodus,” said Gary Hall, head of lettings at Knight Frank. “Those who were on the fence have already left and those who stayed have benefitted from strong rental value growth in recent years.”
Among a number of proposals, the Renters Rights Bill could change the rules relating to regaining possession of a property. It means landlords are more likely to use agents with a strong track record, said Gary.
“Under the new rules, landlords will rely more on the best agents,” he said. “The level of rent arrears at Knight Frank is less than 1%, while the vast majority of tenants leave because they are moving on anyway. We also have exceptional access to corporate tenants who would not be covered by the new Bill.”
Average rents in September were 33% higher than before the pandemic in PCL, while the jump was 30% in POL. A large part of the increase was due to an imbalance between low supply and high demand, which underlines what could happen if any future legislative changes are not carefully calibrated.
For now, rental value growth has returned to historically normal levels, as the chart shows. In PCL, an annual change of 1.1% in September was the first time the figure was less than 2% since July 2021. The same sub-2% milestone was recorded in POL, where rents grew 1.8% over the same 12-month period.
