Rents near to “affordability ceiling”

Around one in three tenants (30%) is spending over half their take-home pay on rent. The proportion rises to 32% in London and the East Midlands, to 33% in the South-West and Wales, and to 36% in the South-East.

The overall average in the UK of rental spend is now 38% of net income.

Rightmove warned that rent has reached an ‘affordability ceiling’ in some locations, but also reported that 61% of tenants expect their rent to be higher in 12 months’ time.

The huge survey of 6,913 existing tenants should, said Rightmove, provide ‘food for thought’ for investor landlords who are eyeing up further increases in rental returns.

Miles Shipside, director of Rightmove, said: “While the failure of rental supply to keep pace with tenant demand persists, fuelled by the needs of tenants unable or unwilling to buy, our research raises some interesting questions about how high the affordability ceiling is and how close we might be to it.

“Greater new investment in the rental sector would ease the pressure on rents, but currently the rental supply tap continues to produce a drip rather than the steady flow that the market really needs.”

He went on: “While the rental bubble is unlikely to deflate, as there is no readily acceptable alternative to the rented roof, it does appear to be approaching a limit in some areas.

“Agents report that the seemingly incessant demand is causing rental price pressure to spill over into other previously less sought-after areas and some tenants are attempting to negotiate lower rents.

“This is a clear sign that rents may be hitting an affordability ceiling in some locations, and when it hits an obstacle, like water it finds the path of least resistance and makes it way to other nearby areas with more headroom.

“It is an early warning sign of some over-heating and, as well as raising demand in cheaper locations, it will force some to find alternatives such as stay with parents or squeeze more people into smaller spaces.”

A recent joint report by Rightmove with Savills has predicted that one in five households will be privately rented by 2012.