The annual growth in private residential rents has almost doubled as demand increases while rental supply sees a modest decline, Zoopla has found.
Zoopla’s quarterly Rental Market Report powered by Hometrack showed since 2016 there has been a 4% drop in the supply of homes coming to the market for rent.
There has reportedly also been an 8% increase in rental demand over 2019.
Richard Donnell, research and insight director at Zoopla, said: “A lack of supply and real wage growth is behind the increase in average rents across the country over 2019.
“New investment by landlords has fallen since the introduction of tax changes in 2016 and this has been felt most keenly in southern England where property values are highest and yields lowest.
“This is creating scarcity and explains why rents are rising in the face of increased rental demand as levels of employment continue to grow.
“The scope for landlords to increase rents is greater when earnings are rising faster than rents and this has been the case for the last three years.
“The positive news for renters is that the growth in rents is running below the growth in average earnings.
“We expect the acceleration in rental growth to moderate over the first half of 2019, which is typically a period of slower rental market activity.
“We expect rents to increase by 3.5% over 2020 as a lack of supply supports faster growth.
“With further policy changes expected from the government to provide more security of tenure for renters we expect the supply of rented homes to remain constrained, which will support rental growth over 2020.
“With robust earnings growth, the impact on rental affordability will be muted.”
The growth in average earnings has outpaced the growth in rents for the past three years.
At present, the average renter is spending 31.9% of their annual earnings on rent, unchanged from a year ago.
At city level, rental growth varies from 5.8% in Nottingham to -2.9% in Aberdeen.
There are three cities where rents are rising above 5%, York, Bristol and Nottingham, which all have below average levels of homes for rent when compared to the national average.
In Bristol and York, the relatively high cost of buying a home is likely to be supporting rental demand and, in turn, rental growth.
In Nottingham, demand for renting has grown faster than the national average over 2019.
Despite the overall pick-up in rents at a national level, there are three cities where rents are falling which are Aberdeen, Middlesbrough and Coventry.
In Aberdeen, rents are falling at their lowest rate for over four years as rental supply starts to reduce.
Rental growth in Middlesbrough is also weak as lower employment growth and affordable home ownership keep rental demand in check.
Weaker growth in Coventry is in contrast to the period between 2014 and 2016, when rental growth raced ahead by 5% to 10% per annum stretching affordability levels.
The supply of homes for rent per agent in Coventry is 20% above the national average, minimising competition amongst renters, and resulting in flat rents over 2019.
However rents in London fell over 2017 and 2018 on weaker demand but they are now increasing by 2.8%, the highest rate for almost four years.
The available supply of homes for rent, per estate agency branch in London, has declined by 20% over the past two years.
In the past decade, average rents have grown from £700 per month to £886 today, an increase of 27%.
These figures are in line with the growth in average earnings over the same period (26%).
The highest growth city is Edinburgh, where rents have grown by 50% (an annual average of 4.2%), followed by Bristol (45%) and Coventry (45%).