Renting in London has always been expensive, but recent data reveals just how dramatically prices have climbed. SpareRoom’s research shows an average rent increase of 32% over the past five years, rising from £744 to £983 per month. Some areas, particularly in the East and South East, have experienced even steeper increases. For example, SE2, encompassing parts of Greenwich and Bexley, has seen a 54.7% surge, with monthly averages jumping from £531 to £820.
The situation has prompted London Mayor Sadiq Khan to push for a rent cap, pledging to build at least 6,000 rent-controlled homes and advocating for a two-year rent freeze. He believes this would provide significant relief for London’s tenants, potentially saving them an average of £3,374. However, the implementation of such a policy requires the support of the Labour government, which has yet to fully commit.
So, what’s driving this rapid increase in rent prices? Max Royston, senior valuer and director at Gaffsy, attributes the rise primarily to increasing interest rates, a trend affecting the entire country. He explains that the higher property values have significantly increased the cost of servicing buy-to-let mortgages. Furthermore, rising costs for building materials, contractors, and energy have led to increased service charges in many leasehold blocks, sometimes more than doubling.
This financial pressure has prompted some landlords to pass on increased costs to renters through higher rents, while others have opted to sell their buy-to-let properties, further reducing rental supply. East London, known for its creative hub and nightlife scene, has experienced a particularly high demand, contributing to the rise in rental prices. Additionally, improved transport connections, particularly with the Elizabeth Line, have boosted demand in areas like Whitechapel, Liverpool Street, Canary Wharf, and Custom House, allowing landlords to charge higher rents.
The potential impact of a rent cap on London’s rental market is a subject of debate. While Labour’s stance has been somewhat lukewarm, Sarah Gillbe, a senior consultant and conveyancing specialist at Setfords Law firm, points out that rent controls are not a new concept, having been implemented in the UK after World War I until the Thatcherite deregulation in 1988. She emphasizes that the effectiveness of rent controls would depend on the specific mechanism used to determine them.
Proponents argue that rent controls could provide much-needed relief for tenants, but critics warn that they could lead to unintended consequences, such as landlords exiting the market due to reduced profitability, further shrinking rental supply. This could potentially benefit first-time buyers, as more properties become available for purchase. However, it could also lead to a decrease in the value of typical rental properties, potentially reducing the gains landlords could make upon selling their properties.
Ultimately, the impact of a rent cap on London’s rental market remains uncertain. The current climate, characterized by skyrocketing rent prices, suggests that many tenants may consider the potential risk of a rent cap worth taking. However, the complex interplay of factors influencing the rental market necessitates careful consideration of the potential consequences before any policy implementation.
