A landlord called me yesterday asking about rental inflation in the area. As the government has put the squeeze on landlords, many landlords are now looking to increase rents to make their investment keep its head above the water.

Looking at recent rents we have achieved and asking rents for property in Glastonbury and the surrounding areas I see rents are starting to race ahead of consumer price indices.

Recent government statistics show rents for new tenancies in the Mendip district grew 3.85% in the last 12 months (i.e. not existing tenants experiencing rental increases from their existing landlord). For the corresponding period the year before rents for new tenancies grew 4.4%

So how can we explain the slight easing on rental inflation?

The explanation for the slight drop from the previous year depends on which side of the demand/supply equation you are looking from. On the demand side (from the tenants point of view) there is the uncertainty of Brexit and the fact that salaries are not keeping up with inflation for the first time in three years. Critically this means tenants have less disposable income to pay their rent.

On the supply side (landlords point of view) Brexit also creates uncertainty. However, the biggest issue was a massive upsurge of new rental properties coming on to the market in late 2015/early 2016 caused by George Osborne’s new 3% stamp duty tax for landlords in the first part of 2016. This meant a lot of new rental properties were ‘dropped’ on to the rental market all at the same time. The greater choice of rental properties for tenants curtailed rental growth/inflation. A slight softening of  property prices has compounded this.

Figures from The Bank of England suggested that first time buyers rose over the last 12 months as some were more inclined to buy instead of rent. Together, these factors played a part in the ongoing moderation of rental growth.

The lead up to the General Election in May didn’t help: after all people don’t like doubt and uncertainty. So now that we have a new government for the next 5 years, this will hopefully remove some of the uncertainty stopping tenants making the decision to move home.

Whether it be ‘hard’ or ‘soft’ Brexit negotiations (and with the Election result the Tory’s might have to be ‘softer’ on those negotiations), the simple fact is, we aren’t building enough properties for us to live in. Both in central Somerset, the South West and the wider UK, long-term population trends imply that rents will soon be growing faster than inflation again.

Looking at the Office of National Statistics projections, the population of the Mendip district will increase by 14% from 110,800 in 2014 to 126,400 in 2039.

Tenants will still require a vibrant and growing rental sector to deliver them housing options in a timely manner. As the population grows in central Somerset and the wider UK any restriction to the supply of rental properties (brought about by poor returns for landlords) cannot be in the long-term best interest of tenants.

Simply put: rents must go up!

The fact is that I see this as a short-term blip and rents will continue to grow in the coming years. With rents only accounting for 29% of a tenants’ disposable income, the ability for most tenants to absorb a rent increase does exist.

About Tom Morgan

Founder of Jungle Property the multi award-winning letting agent based in Glastonbury, Somerset. I am passionate about property and Glastonbury and about providing the very best advice to anyone who wants the best return on a buy-to-let property investment. For an open and brutally honest opinion on anything in the Glastonbury property market please contact me via tom.morgan@jungleproperty.co.uk