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London rents rise at fastest pace in more than two years

·Finance and policy reporter
Apartments and high-rise buildings near Greenwich, England. (Photo by: Education Images/Universal Images Group via Getty Images)
London rents are on the rise. Photo: Education Images/Universal Images Group via Getty Images

Average rents in London rose last month at their fastest rate in more than two years, official figures show.

Estate agents said supply was not keeping up with growing demand from renters unable to afford their own homes, while tax reforms have deterred landlords.

The rent paid by tenants in the average property in the capital rose by 1.2% in the year to December, according to the Office for National Statistics (ONS).

Analysis by Yahoo Finance UK shows it marks the steepest increase in rents since August 2017, and was up on the 1% increase year-on-year seen the previous month.

READ MORE: UK property sales on the rise in ‘Boris bounce’

November had also marked the first time in more than two years annual rent growth had exceeded 1%.

Subdued growth partly reflects the slowdown in London property prices in recent years, itself fuelled by tax changes, Brexit uncertainty, and an affordability crunch.

How much the average rent is in London

Separate official data obtained by Yahoo Finance UK reveals the average rents per month for different kinds of properties in the capital in December.

The average room costs £592 ($773), a studio costs £900, and a one-bedroom property costs £1,20. The typical two-bedroom home costs £1,400, a three-bedroom cost £1,695, and a property with four or more bedrooms costs £2,300.

The rent costs are ONS figures collected from landlords and letting agents, and based on the median average — a property in the middle of a table ranked by price.

READ MORE: UK house prices rise at fastest rate in more than a year

Why rents are rising in London

Marc von Grundherr, director of London lettings and estate agent Benham and Reeves, said rent hikes reflected a “fundamental lack of properties to meet the overwhelming demand.”

He said property prices were so high many Londoners were left unable to buy and “with little choice other than to rent,” increasing rental demand.

The number of Londoners aged 25 to 34 who own their own home has fallen from 57% in 1990 to 34% in 2018.

Prices have skyrocketed by 78% over the past decade despite the recent slowdown, with the average London property selling for £475,000 in November.

London property prices have soared faster than othe regions over the past decade, despite a slowdown in recent years. Chart: ONS
London property prices have soared faster than othe regions over the past decade, despite a slowdown in recent years. Chart: ONS

Jeremy Leaf, north London estate agent and a former Royal Institute of Chartered Surveyors (RICS) residential chairman, predicted the upward pressure on rental prices could continue in 2020.

“With seemingly inexorable demand from tenants and aspiring first-time buyers still finding it tough to raise purchasing deposits, this demand is likely to remain strong for some time to come,” he told Yahoo Finance UK.

READ MORE: Government blamed for ‘alarming loss’ of affordable homes

But von Grundherr added that the issue had been exacerbated by a government clampdown on income tax relief and higher stamp duty for landlords since 2016.

“Changes in tax relief and an increase in buy-to-let stamp duty tax have dampened the financial return for the sector's landlords and caused many to exit altogether,” he said.

“This industry exodus has resulted in more rental homes hitting the sales market; great for homebuyers but not so much for London’s tenants.”

Leaf said the uptick in prices could reverse the trend, however. “Looking forward, we don’t really expect too much change although we have noticed some landlords seeing an opportunity with regard to these shortages and returning to the market.”

Separate government data published this week also showed almost 25,000 homes lying empty in the capital, a seven-year high.

Tom Copley, Labour housing spokesman on the London Assembly, said: “While bringing empty homes into use won’t solve the housing crisis by itself, it’s in everyone’s interests to clamp down on this entirely needless waste and injustice.”