Understand why London’s rental market has become a ‘nightmare’

For Rebeca Blázquez, the last few weeks have been a “nightmare”.

Based in Madrid but hoping to find work in London before starting her master’s, the 22-year-old university student spent a month searching online for a room to rent in London on a budget of £900 ($1,070).

She sent dozens of messages to unoccupied landlords and tenants and logged in for virtual previews only to discover the room had already been occupied.

“I think I sent over 100 messages to different ads and only got [uma] response to 30 messages,” she said.

Renters, real estate agents and property search specialists described to CNN Business a frantic race for rental units since spring — which occurs between the months of March and June —, when students and workers returned to the city after the pandemic.

This increase in demand collided with a sharp drop in supply. Data from Rightmove, an online property portal, shows that the number of available rentals in London has dropped by almost a quarter between July and September compared to the same period in 2021.

As a result, prices soared to all-time highs.

The average monthly rent, including bills, for a room in a shared house or flat hit 933 pounds ($1,109) in October, up 17% from before the pandemic, according to data from SpareRoom, the biggest search engine. of country roommates.

Blázquez said looking for an apartment this fall was a far cry from her experience in September 2020, when she last rented in the city.

She settled into one place earlier this month but is paying almost £300 ($357) more for a similar-sized room in a less desirable location.

“I rented it without seeing a video or anything because I was so desperate,” she said.

‘You can’t hesitate’

Matt Hutchinson, director of communications for SpareRoom, told CNN Business that the capital has seen an “enormous influx” of students, young people and foreign workers in recent months – a demand that the pandemic has kept repressed.

At the peak of September, there were nearly nine people looking for every room listed on the website.

“We’ve never seen the market like it is now,” Hutchinson said.

While demand has dropped slightly since September, it is still higher than the average summer peak, when the market is usually at its busiest.

“If someone advertised a fourth in the last few months, they’re likely to get hundreds of responses,” Hutchinson said. “It’s a battle to even get a response or get an agent to see it,” he added.

Renters across the UK are having to do anything to secure a room.

In a SpareRoom survey of UK renters in September, a fifth said they ended up paying several months’ rent in advance, while another fifth said they had to bid above the asking price to secure the room.

Nearly half said they had to decide during a screening whether to occupy the room.

Greg McLoughlin told CNN Business who, when he began his “exhaustive” six-week search for a room in early October, was often asked to pay a deposit equal to eight weeks’ rent – ​​double the typical four weeks.

McLoughlin, who works for a cryptocurrency exchange, said he “rarely received any messages back” on SpareRoom, despite paying a £11 ($13) weekly subscription to be able to respond to ads within seven days of posting.

He eventually bought a room in a five-bedroom house in south London for £950 ($1,130), although the landlord warned that the rent is likely to rise. Still, he is relieved.

“Everyone is super anxious looking for accommodation,” said McLoughlin. “You cannot hesitate in this market,” he added.

supply crisis

The problem is simple. There are too many tenants chasing too few available homes.

Jeremy Leaf, founder of Jeremy Leaf & Co, a property agency in north London, told CNN Business that the number of properties advertised on his website was down 40% from last November.

Landlords are leaving the rental market as it becomes less and less profitable.

Since 2016, the UK government has increased taxes on second home purchases and cut the amount of tax homeowners can claim on their mortgage payments.

Many landlords are also concerned that it will soon become very difficult to evict difficult tenants — including those who may be late on rent, caused damage or mistreated their roommates — if the government passes bills banning “no-fault” evictions, Leaf said.

Landlords can evict tenants in a different process, but this usually takes much longer and may involve a court hearing. Parliament is expected to vote on the new legislation before the end of the year.

Add to that rising inflation and renting real estate isn’t as profitable as it used to be.

“Just the cost of getting people to renovate properties, the cost of materials has skyrocketed,” said Hutchinson of SpareRoom. “More and more homeowners are leaving the market because they just can’t afford it,” she added.

Some homeowners have even decided to sell everything, taking advantage of the rise in property prices this year, said Amelia Greene, managing director of Savills real estate agency. The average asking price in the capital is up 5% so far this year, according to Rightmove.

Compounding the supply crunch this year, Leaf said, is that more tenants are deciding to stay and renew their current leases for a lower rent increase than they would get elsewhere.

A sharp rise in mortgage rates is also keeping would-be first-time buyers trapped in the rental market, further reducing the amount of inventory available.

‘Unprecedented’ pricing

London rent prices may have cooled somewhat since their “pretty unprecedented” rises over the summer, Leaf said, but the city’s chronic supply shortages mean further rises are on the way.

“Upward pressure on rents will increase,” he said.

The average monthly rent for a two-bedroom apartment was £2,226 ($2,646) last month, data from Rightmove shows. That’s 19% more than in February 2020, before the pandemic led to an exodus of workers from the capital.

Savills expects average London rent — across all property types — to rise another 5.5% next year.

Those who are paying less are having to make big concessions.

Sally Vince, who works in commercial real estate, told CNN Business that, after a “very stressful” period looking for her £700 ($832) room this summer, she took what she could.

🇧🇷[Eu] I pay less rent, but I’ve had to compromise a lot with how many people I’m living with… the available amenities and just the overall condition of the apartment,” she said.

Vince compares his search to his previous apartment search in 2019.

So about half of the people listing rooms would respond to her questions, but this year she only received three responses to the 50 requests she submitted.

“Now I have a permanent job, I know how it works and I know a lot of people in London, but it was much, much harder this time,” she said.