The man who sees every rent in Britain

0:02Hey everyone, it's Rob B here with Rob D. You are listening to the Property Podcast and this week we are in a very, very privileged position. We have access to a huge set of data that's never been discussed on this podcast before. And to take us through that data, we have a very special guest.

0:27Yes, welcome to the Property Podcast. Thank you for joining us. in case you don't know, we run a business that arranges more than£100 million worth of property deals every year. And something that comes up all the time with our clients, of course, is rent. What are rents doing? How much rent should you be charging? And today, Rob, we're able to go deeper into that subject than we ever have before. We are. I'm really excited. Our special guest this week is Richard Donnell, who's the Executive Director of Research at Supla. And he has wonderful, wonderful data at his fingertips. And the brilliant thing is he's sharing that with us today, Rob.

1:02We're getting access to the type of information that people just don't discuss elsewhere. And importantly, we'll discuss what that data means for our listeners and how they should be acting with it. And that puts us in an incredibly privileged position. I think it's worth saying that we showed Zoopla a bit of love in this episode, but there's not a paid partnership. This is just a coming together of two wonderful brands, obviously, Super being a mega, mega brand. But Rob, this is a mega episode. Yes, we are so lucky that Richard gave us some of his time and it was not an opportunity we were going to waste.

1:33So I cornered him in a room and got him to share everything, including where rents are rising fastest and why, why London has been lagging and what is going to change that. And of course, the big question that everyone wants to know the answer to, where are rents going from here? So I started out by asking Richard about that data. Where does it all come from and how did he manage to extract all the insights that go into his reports? Well, look, we're very lucky. we have a huge property portal. We have 9 million individual people using our website every single month. So we can see what renters are looking at.

2:03We can see how much competition there is for properties for rent, how landlords and agents are setting rents on a daily basis almost. And look, all of this is from advertised listings. But again, those signals of how people are interacting, whether landlords and agents are cutting rents because they've set them too high, it provides a really rich pattern on things like how much rents are changing the time to rent a property etc and obviously more importantly you can look at it at a town city or regional national level so crazy to think you've got access to so much data and so much information it's knowing where to start when you've analyzed the data what surprised you the most what have you looked at and gone aha okay did not expect that what stood out for you what took everyone by surprise was just how crazy the competition was for rented homes.

2:51We had record net migration into the UK. Landlords had not been investing for five or six or seven years, so supply was static. And we had this position where 16, 17 people were chasing every single property for rent, and now that's totally reversed. But all of this plays through into how rents are changing. Today, rents are falling in some cities like Nottingham and Birmingham, but they're still rising at quite a decent rate, more than 5 % across more affordable areas, typically where rents are below£750 a month. And renters are seeking better value for money now. And so you actually have quite a wide variation in what's happening to rents.

3:29But again, that interaction of supply and demand has a massive impact on not just where rents are going today, but where they're going to go over the next three or four years. I think that's really interesting because so much of the headlines that we read, it's the national data but the regions there's a story in every region like one region can be performing really well but like you said there's others that could be falling behind but that's the stuff that really doesn't get talked about that often look it's a lot of the media today is it's the headline what's the big picture but i think again if you're a landlord in birmingham or nottingham you know if someone puts out a story saying rents are up five percent you're going to be well it's not me whereas if you're in oldham over the last five years or so you know rents in the local market have gone up 60%, basically.

4:11And if you're in parts of Scotland at the moment, rents are still rising in double digits. But that's the whole housing market. There are literally thousands of housing markets. Same in the sales market. It's what's happening in typically local economies drive loads of housing markets, local rental markets. And if the economy is doing well, incomes are rising, the jobs market's strong, and or it's really unaffordable to buy a property, that stokes up the demand for rented housing. And then, you know, Subject to affordability, because renters are limited on how much they can pay on rent on affordability.

4:44So, yeah, big variations around the country. So if you boil it down to, and you touched on some of this already, but what are the areas that are growing the fastest? And what is it that those areas have in common? I think it's all about affordability at the moment. I mean, rents nationally have jumped 35 % in five years. That's exactly in line with earnings growth, which is what rents track over the long run. But what we're seeing is a lot of what you call catch-up rental growth in cheap markets or cheaper, more affordable markets around big cities. Particularly in Scotland at the moment, in areas around Falkirk and Kilmarnock, between Edinburgh and Glasgow, areas around Manchester, there is room for people to go and find better value for money in rents.

5:28And so, you know, in markets where rents are averaging less than£750 a month, which is half the national average, more or less, you know, rents are rising at 5 % or 6 % a year. But if you go to a big city that's seen a lot of rental inflation and renters simply can't afford to pay any more and there's much weaker demand because migration has fallen off, got fewer people coming to work and study, fewer overseas students, you know, rents are flatlining in those markets. And so I think it comes back to something I talk about a lot, which is landlords for me are rent takers. They're not rent setters.

6:01I'm sure they would like to get X for their property. But at the end of the day, you can only get what the market will stand, basically. And in the rental market, it's very liquid. Homes don't stay on the market for long. The typical home rents within 12 to 14 days on Zoopla. But if you've still got no interest in the property, you've got to avoid looming. You have to make an adjustment in your rent. So again, I think that's an important point. It's so true. You often hear the narrative, oh, you know, landlords are setting rents too high in a certain area, but it's the market. It's always the market.

6:33If a landlord could get away with charging£10 ,000 a month for a one-bedding olden, then I'm sure they would. But the market won't allow it. And the market has and always will be the setter of rents. Now, some people may not be setting the market rate. And sometimes you can have a home that is nicer than the average property. So therefore, it can do above average. but it is always the market. I think that's missed. No, I agree. I think the rental market is far more rationally priced than the sales market, where there's sort of a more emotion. I mean, at the end of the day, renters are typically in a property for four years.

7:08They are buying location, proximity to what's important to them or value for money and the type and size of the property, basically. And it's a very liquid market. It clears very quickly. But if you're trying to get too much for the location and the type of property you're offering relative to what else is available and within the kind of affordability constraints of renters then you're going to find a real lack of interest and you're going to have to sort of adjust the price accordingly and it's the same in the sales market it's the same in all markets you need to make sure your pricing is sort of bang on the money for what local renters can afford and want i think it's such an important point because people seem to have the impression that landlords act as a cartel but they there are so many landlords you can't get to whether to get and coordinate it even if you wanted to.

7:52So if you do price even£25 too high, it will just sit there. And you often see on landlord forums, people go, oh, this regulation is coming in, I'm going to have to put my rents up. Well, you can try, but if the market won't take it, the only way you can do it is if you are under renting to start with, which some landlords historically have been. So I'm interested in what patterns you're seeing in rents at the point of a new tenancy being granted, which is where you can reset it to market level. And what's happening with rents within tenancies, where it's very much at the volition of a landlord, whether they want to increase the rent or not.

8:28Yeah, look, I think the Zoupla Rental Index tracks, effectively, vacant possession. So a property was a two-bed flat in Edinburgh is coming for rent today. It was empty a year ago. What's happened to the level of open market rent you can get? So that's what our index tracks. The government has a rental index. That's more of a portfolio view. So our index is running at about two to two and a half percent year on year at a national level. The government's index is a little bit higher, but it's reflecting that catch up. So, you know, the average tenant in a property for four years, you know, we know from the government's own data that often around about half the time as a tenancy renews or it moves in the old world before the Renters' Rights Act, a periodic tenancy.

9:12Half of landlords didn't reset the rent. So I think actually there is catch-up rental inflation coming through the system at the moment, because obviously landlords have faced some pretty big increases in running costs, repairs, maintenance, insurance, regulation, higher mortgage rates. And as we've talked about, landlords can't just put the rent up to as much as they like. They have to go with what the market can bear. But I think actually what we're probably seeing now, I would imagine we've been through quite a one-off exceptional period in the rental market in recent years. There has been this one-off big jump in rents in line with earnings.

9:47And I think actually typically over the long run, the rental market's much more stable where rents typically rise at 2 % to 3 % a year. You don't get much volatility. And I think we're sort of heading back to that period of much steadier kind of rental growth overall. Richard, obviously the big story of this year has been the implementation of the Renters' Rights Act after years of what will it be, when will it happen? It finally did happen. And something that has been in the press over the last few weeks, and which we wrote about in the Sunday Times recently, is the effect of the fact that now as a landlord, you can't accept or encourage bids above the asking price.

10:24And what's been reported in the press is that we're seeing landlords go, well, in that case, I'm going to advertise the maximum and tenants will have to bid up to that. Do you think that's something that is happening or could happen to an extent that it would show up in the data and you might see a jump in advertised rents? Look, it's a great question. We haven't really seen it, if I'm honest with you. We looked at some data from a couple of years ago where 80 % of tenancies were agreed at the asking rent, a small proportion over when the market was running hot, a small proportion below. So I did expect that, you know, will our rental index suddenly jump upwards?

10:59But it sort of really come through. And again, as I say, in Birmingham and Nottingham and other places, rental inflation is pretty subdued. And I think a lot of that is because of the market. I mean, demand, you know, when the rental market was red hot, we had migration of 900 ,000 a year into the UK in 2023. And this year, it's supposed to be less than 200 ,000. And the last 10 years, it's been 300 ,000. So we've definitely got a calling in demand coming through overseas students. We're not really seeing a renters' rights impact kind of coming through on rent levels, but obviously landlords need to be careful and yes you probably want to err on that if there was a range of rents you might want to err slightly on the upside and again it's how much tenants are used to sort of trying to negotiate on rent it's not something they've had to do for the last three or four years so you know we might take a little bit of time for tenants to realize or potentially take the risk as they might say on on bidding below the asking rent and again it's how well the agent or the landlord sort of creates the right kind of environment to make sure that people think there's lots of competition and maybe I should just offer the asking rent basically but but no major change coming through in the data at the moment.

12:03Richard something we've seen in the the market over the last few years is that the big difference in growth between houses and apartments or flats in terms of price growth has that also been reflected in the rental market as well have we seen one be more popular than the other? Yeah there's a real difference actually and it was a great question that you guys asked. Yes, so whilst there's been a huge divergence in flats and house capital values, actually the rental values of flats and houses have pretty much tracked each other almost pound for pound. There's only actually, if you look at the sort of average difference between the rent of a flat and a house, it's only about£50 difference over the last five years, basically.

12:43So I think this reinforces the point that tenants effectively are only in a property for up to four years on average. It's all about space, location, where you want to live. And so people are just effectively renting space and where they want to live. So obviously tenants don't have service charges, ground rents, the challenges of dealing maybe with freeholders and managing agents. At the end of the day, they're there renting the property basically. Yes, it's been a very, very kind of stable relationship between rents for flats and houses. I suppose where people typically want to rent, a lot of people want to rent cities is where you naturally will find more apartments anyway compared to houses.

13:22So I suppose logically it's just that people have these preconceived ideas on what's better than the other. And this is something we talk about on the podcast a lot. We talk about having both in your portfolio and people have very strong beliefs on that they love apartments or they love houses. But like you said, renters don't think that way. It's not an emotional thing. about I love houses or I love apartments. It's like, I love what's best for my lifestyle right now. You're right about flats. And I think the other challenge, I think, in the house market is that, again, depending around the country where you are, again, renters, because of affordability, maybe they're forgoing the sitting room now.

13:57So there's three beds going into a two-bed house, and people are forgoing that shared living space because of affordability and value for money. So that's one other trend, I think. But I think you could apply the same for a flat, basically, and that the kind of living room in a two-bed flat might get sort of taken over. I think it's a theme and obviously it takes landlords into the potentially slippery slope of HMOs and extra, you know, if it seems you get three people in a property, you know, just what are the licensing rules and this, that and the other. So it's a way of tenants being able to afford and then as a result landlords can get a higher rent basically, but it comes with sort of more regulation.

14:33So, yeah, it's a key trend and you're absolutely right, you know, the rental demand is sort of where the cities are. But I think, again, there's more and more kind of corporate investment coming into the people wanting to buy family houses, right? So I think there's a stronger rental market for houses as there are for apartments. I think what you're saying about people having to create more space, almost forgo the living room, takes us into talking about London quite nicely. Because London's a case where you've got such a supply-demand imbalance. There's huge demand in London. I believe rental stock is static or falling not a lot is getting built but rents haven't been going up that fast and that's I presume is because of the affordability point that you mentioned earlier it just hit a point where it can't go any higher so do you believe that that's the case like rents in London kind of can't go up until earnings go up renters can't pay anymore and there is no more space to reclaim from anyone as people start sleeping in cupboards yeah no certainly that is London is probably one of the rental markets most under pressure, and you do feel for renters on affordability.

15:41I think the big factor in London really is just the sheer cost of being a first-time buyer. Government data shows the average deposit of a first-time buyer in London is£150 ,000. The average household income is£100 ,000. That's two people on 50 or a single person on£100 ,000. That's a huge proportion of the workforce in London who simply can't afford to buy a property. So where do they have to go? Well, they have to go to the rental market, basically. And so there's huge demand for rented housing in London. But then, based on average incomes and what graduate salaries are and things, there's literally a limit on how much people can stretch themselves to spending on rent.

16:18And you're absolutely right, that's where we sort of hit this affordability limit. Rents can rise faster than earnings in London if more people start sharing. But I do think, I haven't done the analysis, this, but I'd imagine London must be getting close to kind of peak sharing. But I do think probably, and again, I haven't done the analysis, I have a gut feel that actually around many cities in the UK, there's probably, you know, rents might rise faster than you might think just because there might be more sharing basically, because people just can't afford to commute, etc. So, yes, in London, there's a big supply demand imbalance.

16:50Rents aren't falling in London, but they're rising very slowly just because of that supply demand imbalance. But, you know, maybe if it's steady 2-3 % rental inflation, that's sort of good for landlords. If earnings are rising at 4-5%, then at least it's less faster than earnings are going up for tenants. But yes, it's an expensive city. And look, it's currently probably losing out to Manchester and other places at the moment, just because the cost of housing is a disincentive for businesses to relocate to London and or for where do I want to start my working life paying 40 % of my income on rent, do you know what I mean, to rent to a single room.

17:26So that's one of the challenges for London, to what extent does its housing costs have an impact on the economy? Because, you know, you need a strong growing economy to kind of support house price inflation and future rental inflation. Richard, if a landlord was in a privileged position to have access to all your wonderful data, what would you get them to act on? If they could just take one bit of information from your data, what would you have them do? For me, and the analysis I'm doing in the data is the future is all about rental inflation. The kind of model of being a landlord has changed, basically, I think, from getting lots of leverage and buying a house, taking what the rental market gives you, but hopefully focusing on having lots of house price inflation to drive your returns.

18:07The model for me has almost flipped on its head since the tax changes 10 years ago. And it's actually the reason for being a landlord is all about the strength of the underlying cash flow, you know, where the resilience of rental inflation is incredibly strong. You know, rent and earnings and inflation have risen at pretty much exactly the same level. So if you're a pensioner or you're thinking about a balanced portfolio, actually that monthly rental income that tracks earnings, which is kind of what your future liabilities as a pensioner or someone drawing a pension or retirement income. And that's the reason why a lot of institutional investors are investing, basically.

18:45They kind of love that link, basically. So that, for me, is what the data is telling me, is investors need to think long-term cash flow, not short-term or house price inflation or relying on house price inflation to really deliver the returns of being a landlord. I think it's an interesting market right now because there's times gone by where the rental returns weren't there at all and people were only able to invest if they banked on some sort of growth. And it was a fingers crossed approach. But in the market, because things are so subdued or the sentiment's probably better, not the market, but sentiment is so down that the yields have just continued to improve because house prices haven't moved that much.

19:28But we talked about the incredible amounts of rental inflation that we've had. whereas now it's become a point where just the yields forgetting what caps growth you may or may not get in the future just the yields right now make it interesting again for investors it's just it may take a bit of time for people to notice but like you said the institutions already have yeah and i think the other thing for landlords to do is to you know we know everyone's obsessed with the value of their home and what their capital value their home could be worth but i just wonder how many landlords keep really, I think it's really hard to keep tabs on the rental market.

20:01And, you know, I keep getting this rent of a thousand pounds a month, 750 pounds a month, but, you know, where is the market? And I just wonder, especially for landlords that don't use an agent, I think agents are more likely to kind of review rents on a regular basis. But, you know, again, as a landlord, you might think you're doing your tenants a favour by kind of not putting up their rent, or you're happy to get this much money, or you're probably thinking if you're a high rate taxpayer you might be paying a lot of it to the tax man and maybe the tenants you know can get a benefit from me not putting up the rent but um so i just wonder how many landlords rent is sort of in or out of kilter with the market and um and again it's just something to think about right it's it's no different to kind of reviewing your portfolio shifting your allocation around and your stocks and shares isa or your your sip or whatever but i think just making sure your kind of rent's in line with the market i think is just good landlord business practice i think yeah can you tell us a bit about the tool that you've developed to help landlords get an idea of where their rent could be yeah so look zoopla has around about over six million people tracking the capital value of their home and getting alerts every month on how that's changing and we're just rolling out the rental equivalent basically so we've built a rental estimate calculator that means that landlords can track a single property or multiple properties see the estimated open market rental value of that property and then get updates ongoing as to sort of how rents are tracking across their portfolio which again brings this point home that you know if you're in london or you're in oldham or you're in kerman or you're depending where you are around the country again i just think it's it's not easy for landlords to sort of keep tabs on what's happening to rents and that's why we've built this zupla rental calculator yeah we'll put a link to that in the show notes.

21:48I think it's useful to know where your rent could be. It doesn't mean that you have to max all the way up to it. It doesn't mean you have to increase it every year. But I think now that the trigger of the tenancy renewal isn't there, if you're a self-managing landlord, so you don't have an agent tapping you on the shoulder, then you should at least have that calendar reminder in to every year go, well, let's at least look at it. Then it can be a choice about whether I increase it or not. Otherwise, I can imagine myself doing this. I've done this in the past even i've been lucky enough to have long-term tenants they've been on periodic tenancies three four years have gone by and it just hasn't even crossed my mind and so it should at least be a decision to make which is fine if rents are only rising at one one and a half percent a year right and so actually there's no real material need but if all of a sudden you know rents are up 10 or 15 percent in a couple of years or something then you know again as you say you don't have to go all the way up to that level but moving in the kind of right direction is probably sensible business practice and avoids the tenants potentially having an even bigger shock in three or four years when they've got used to paying X.

22:51But actually, Y is currently the going rate, whether they stay in the property or wanted to move somewhere else. Richard, before you go, I've got to ask the question because people would want to know. The data tells you what's happened or what's happening, but I'm sure it also helps you form really good opinions and views on what's going to happen as well. So how do you see the rental the market over the next 12 months in terms of growth? Do you see a big difference? Do you see it up, down? Of course, there's a regional play to consider. But overall, where do you see the market going? Look, I think with higher borrowing costs for first-time buyers, rental demands is probably going up and we're just not seeing the growth in supply coming through.

23:31So rents are going to keep on rising. They're probably looking at 2 % to 3 % rental inflation in the year ahead. I still think actually into next year, these more affordable rental markets are going to keep catching up. They're probably going to run out of road in the next 12 months or so on that. And then really, if you're thinking about buying new properties, it's all about thinking about where are the strong economies, where's creating jobs, where's the upside for earnings. Rather technical, but there's a great report from the Centre for Cities, which is a think tank focused on cities. They did some fascinating analysis on just cities based on their economies and profile of jobs as to just how much earnings might rise.

24:09So they had places like Leicester, they expected quite a big increase in average earnings in Leicester. So again, if you're a long-term landlord, you kind of want to be where the jobs are and where the earnings growth is. Because again, we've talked about London as having a great, huge demand for rented housing, but there's an affordability cap on how much those rents might rise. Again, I think that's the difference for investors now. It's focusing on that economy, that earnings growth. But again, a lot of landlords want to stay local right so you know if you're in london you probably don't want to run off to leicester and start buying properties necessarily i'm sure you guys have got tips for people on sort of whether to stay local or to look further afield but um you know you can be very forensic about it but um but overall i think we're just going to keep seeing this steady growth in rents we're just gonna have a much steadier period for rental inflation which is probably what both tenants and landlords would welcome rob a thing this week's hub extra is going to be blatantly obvious, but it's a ridiculously useful tool.

25:03It's the landlord calculator tool that they have on Supla. Go to supla.co.uk forward slash landlord. The link is in the show notes as well if you want a direct link to click now. But that will give you a rental estimate of where your property is right now or your future property as well. If you haven't got one yet, it will give you that estimate. And then you'll get emails in the future as well if the level of that rent changes. If you're a landlord or an aspiring landlord, it's a no-brain at all because it's absolutely free to use. So check it out, go to zoopla.co.uk forward slash landlord. And if you want to carry on that winning streak of taking advantage of wonderful, incredible free stuff, then check out Property Pulse as well.

25:42It's our weekly newsletter. Our aim is to make it the best newsletter you will receive in your inbox each week, not just for property, for any subject, but definitely for property. And you can pick that up by going to propertyhub.net forward slash pulse. Well, that's just done for this week. Huge thanks to Richard Donnell for joining us on this episode and sharing a slice of that lovely data with us. I hope you found it as interesting and as useful as we did. And we'll see you back here for the Property Podcast next week. Until then, bye-bye. Bye-bye.