Demand still outstripping supply in the rental market
High borrowing costs and an uncertain economic outlook remain the main challenges for home buyers as the housing market continues to struggle, the Royal Institution of Chartered Surveyors (RICS) has reported.
New buyer demand, in terms of net balance, has dropped to -37% in April from the -30% recorded in March.
“Although the news flow around housing does appear to have steadied over the past month, key indicators from the RICS survey point to a series of challenges in both the sales and lettings space,” Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, commented.
“Most notably, buyer demand still appears to be subdued in the face of relatively high borrowing costs, the prospect of at least one more interest rate hike and ongoing affordability challenges.”
However, most indicators in the latest RICS Residential Market Survey have improved slightly from the lows hit towards the end of 2022.
The indicator capturing agreed sales for April returned a net balance of -19%, up slightly from -30% last month. This also represents the least negative reading since July 2022.
In terms of supply, survey respondents cited an overall flat picture for new instructions during April, with the net balance declining slightly to -4% from -6% in March.
The recent decrease in demand and sales has resulted in a slight increase in the average number of properties held on estate agents’ books to 36 homes on average for each agent compared to 35 in February and March.
RICS also reported that the latest feedback from the survey in relation to house prices remains in negative territory with a net balance of -39% in April, although this current reading is less negative compared to net balances of -43% and -47% seen in March and February.
Looking ahead to the next 12 months, the price expectations indicator continues to improve from the lows hit during the end of 2022, returning a net balance of -16% in April compared to the -24% recorded in March.
Meanwhile, in the rental market, tenant demand has increased in the three months to April according to a net balance of +41%. However, a fall in landlord instructions was recorded over the same timeframe, with a net balance of –24%% of respondents reporting a decline.
RICS noted that with demand continuing to outstrip supply, rental prices are anticipated to be driven higher over the next few months.
“The imbalance between demand and supply in the letting market still remains stark despite the significant increase in rents,” Rubinsohn said. “Critical to addressing both areas of the market is the delivery of more supply.
“However, indicators of the level of new housing starts in the early part of the year suggests that the picture is, if anything, continuing to soften, as housebuilders activity reflects both macro uncertainty and policy developments.”
Samuel Rees, senior public affairs officer at the Royal Institution of Chartered Surveyors, added that the data has consistently shown that supply is one of the biggest challenges to housing in the UK, with prices and affordability driven, in part, by the availability of stock.
“The removal of the annual 300,000 new homes ambition by the government, along with wider planning, material, and labour concerns are adding to the challenges of house building,” Rees said.
“RICS are also increasingly concerned about the pressures facing the rental market. Demand for rental homes remains high, but stock remains low, and landlords are increasingly exiting the market – which is translating into higher rents.
Rees pointed out that the government’s proposed changes in the Renters Reform Bill, while supporting quality and transparency for tenants, will increase pressure on landlords and may force even more to exit the market.
“We are calling on the government to reinstate its housebuilding target to drive supply and give confidence to the market that new homes are coming,” he said. “Furthermore, the government needs to ensure that proposed reforms to the rental market are delivered in such a way that it increases support for landlords and tenants and maintains and grows supply.”
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