Yahoo Finance London rents are falling fast – and that's good news for tenants
Private rents are falling in London at an extraordinary pace. Figures prepared exclusively for the Guardian by Rightmove reveal that in zone 2 of the capital, rental asking prices are down by 8% since February alone. They are falling even more dramatically in the heart of the city (down 18%), but that’s only the international market, which has little to do with real workers. What the zone 2 figures (they cover areas such as Hackney, Brixton, Camden Town, Finsbury Park, Hammersmith and others) tell us is that tenants are fleeing London, and the property market is cracking.
Take the story of 29-year-old bank worker Elaine – she asked me not to give her real name – who is one of many quitting the capital. She has rented in south London for seven years since graduating, but this week she’s handing in the keys to her Tooting flat, heading instead to the commuter town she came from. But she won’t be doing any commuting. The £850 a month she used to pay for just a bedroom in her London flatshare will pay for her own flat with plenty of space, where she will work from home.
The bank has made it clear that it doesn’t expect her back in the office for the rest of this year. More likely, it may not want her back in the office ever, as it’s slashing the amount of central London office floor space it is itself renting (while insisting it’s not about to reduce headcount).
Related: UK renters: tell us about the impact coronavirus has had on you
Elaine tells me her London landlord offered to cut the rent. Twice. But, she argues, why should she want to stay in London? Its usually vibrant social scene has collapsed – its cinemas, theatres, music venues and nightclubs are nearly all shut, and likely to remain so if a second wave of the virus hits the city.
A lot more people than just Elaine are choosing to leave the city because of coronavirus, judged by the collapse in demand for rentals. Many more will have been forced to quit after losing their jobs. Meanwhile, all those Airbnb investors with no holidaymakers around are throwing their flats on to the longer-term rental market.
Take a look at what Rightmove doesn’t tell you when you are searching for a property to rent or buy. Download the (free) Property Log extension for Google Chrome so you can see when a property was first listed, and what has happened to the rent or price since.
A two-bed flat on Hackney Road, for example, which was listed at £2,253 a month in March, has been gradually cut to £1,798 today, and is still on the market. Or a two-bedder in Chalk Farm, down from £1,690 a month to £1,365. In once so-trendy Shoreditch, a two-bedder is down from £3,467 to £2,752 a month. Put in any zone 1, 2 or 3 London postcode and the rent cuts litter the listings pages.
About a quarter of all Londoners are in the private rented sector, and on average they hand over more than 40% of their income to landlords, so any fall in rent is to be welcomed.
But there are always properties that come to the market overpriced and and for which the rent must be cut to find a renter or buyer. So I spoke to a south-west London letting agency manager, to further corroborate Elaine’s story.
She told me clients are simply no longer fussed about being close to a tube for work. “Sharer properties are struggling a lot – people don’t want to move in if their job is insecure … it’s a very weird market. Tenants are putting in low offers, and we’re telling landlords that if they are quality tenants, they should accept and maybe try to renegotiate back up next year.” She added that the agency’s rental “stock” is three times normal levels – and if university students don’t make it back in September, that number will jump even higher.
Is this just a blip? Let’s make one thing clear – this is very much a London thing. Rents in England outside the capital are much firmer, and rising in places. SpareRoom, a houseshare site, said its figures show London rents are down 7%, but outside of London they are up 2%. The ONS said private rental prices paid by tenants in the UK rose by 1.5% in the 12 months to June 2020.
Coronavirus will also, one day, be history. But its legacy will be a permanent increase in working from home, which is likely to have a far bigger impact on London than any other location in England.
Interestingly, the same dynamics are present in New York, with rents down in the wake of coronavirus. The extra factor London has that New York doesn’t is Brexit and the stricter new immigration rules.
Don’t underestimate just how much London’s property market has been turbo-charged by the millions who have poured into the capital in the past three decades. Between 1987 and today, the city’s population leapt from 6.7 million to about 9.1 million, fuelling both the rental and purchase markets. If coronavirus and then Brexit repel people from the capital, it’s hard to see how rents and property prices can rise.
This, of course, will be good news for young adults locked out of the property market for so long, or who have been paying upwards of 50% to 60% of their income to a landlord. It also has big ramifications for much of the rest of England’s property market, with cash made from London sales pushing up prices elsewhere.
But a word of caution. Don’t be suckered into believing there will be a huge rent and house price crash, and all you have to do is sit on the sidelines and wait for a bargain. The “bubble” bit of the London market may be popping, but there is still a reserve army of eager buyers wanting to get their foot on the ladder. More will emerge after each successive price decline.
Interest rates will remain anchored close to zero for a long time yet, keeping loans affordable. The more likely outcome remains a long, gentle deflation in real rents and house prices in the capital in relation to earnings and inflation, peppered by the occasional mini-boom, rather than a sudden spiral down. Lots of places outside the capital could still see real gains, although not of the order of the past couple of decades.
Maybe, just maybe, this means we return to buying a home as a place to live in, rather than as an investment.