October 11th, 2023

From Housing Starts to Rental Surges: A Comprehensive Look at the UK Property Market- Part 2, Rent Hikes and Labour Shortages

By Jonathan Witter, Development Monitoring Director at Assetz Capital

The economic backdrop has continued to throw challenges which have been well documented. The UK major housebuilders have scaled back their new build programmes and SME developers also facing their own challenges. However, faced with a shortage of an estimated 4.3 million homes (Centre for Cities), the bourgeoning demand for housing in the UK continues to provide opportunities both geographically and by sectors such as emerging build-to-rent. Let’s take a closer look…

Record-Breaking Rent Hikes: Why UK Landlords Are Charging More

Residential rent in the UK jumped to 12% in August according to Hamptons, which represents the largest annual increase on record! In complete contrast to capital values, rents in London led the way with a 17% year on year rise. However, most regions across the UK also showed strong rental growth in August. So, why are we seeing such a contrast in the growth of rents and capital values? 

The increase in rental values is being driven by not only a tempering in the supply of privately rented accommodation but also by the passing on of landlord’s increased costs through mortgage cost increases from progressive interest rate hikes, regulatory costs (such as certification, testing etc.) but also, more significantly, from the effect of the introduction of S.24 of the Finance Act 2015, which removed Landlord’s ability to offset the majority of their finance costs and arrangement fees from rental income for tax.

As an aside, the Renters Reform Bill which has been created to stop “no fault” evictions have been delayed this month going through parliament. The Scottish government meanwhile have limited rental increases on existing lettings to 3% but landlords are maximising rental increases between tenancies in an attempt to cover their spiraling costs. Rent increases are still permitted on new lettings however and on newly let properties in Scotland, rents have increased by 13%.  This pressure on the rental market does not look set to relent anytime soon, with RICS recently citing that the dwindling private rental property supply and increased demand will only serve to increase rents further over the next three months to end Q4 2023.

Skilled Labour Shortage in UK Construction: Challenges and Solutions

According to the latest government’s ONS stats, the construction job vacancies have fallen from 40,000 nationally in June to 37,000, which tallies with some of our SME clients’ feedback on site which have cited a slight improvement in labour availability during September for some trades but there still remains an industry shortage for skilled trades. 

The challenges faced by the wider construction industry are not just confined to quantity but also quality. The retirement of the older experienced trades workers in the sector cannot be immediately replaced by new entrants immediately. Hence, the sequencing of trades and planning of the programme remains critical to SME housebuilders in order to avoid the obvious impact on programmes and in turn, on finance costs and ultimately on profitability.