Rents and house prices to rise across the UK as property supply declines – RICS

Rents and house prices to rise across the UK as property supply declines – RICS

11:17 AM, 11th August 2022, About 2 months ago

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Rents and house prices will continue to rise across the UK even as demand drops because there is a severe lack of housing stock, research from RICS reveals.

According to the RICS Residential Market Survey for July, there was a continued fall in house sales over the month.

And while tenant demand is rising, there are fewer homes to rent which will push rent prices up.

However, tenant demand appears to have lost some momentum when compared with readings of +62% and +50% recorded in the three months to January and April 2022 respectively.

On the rental home supply front, a net balance of -8% of respondents noted a decline in new landlord instructions, and consequently, rents are expected to continue to rise sharply over the near-term by a net balance of +57%, with all parts of the UK anticipated to see a further increase.

House sales will continue to decline

RICS also says that with house sales reduced currently, predictions for the next three months also slipped further into negative territory, and for 12 months ahead, the sales expectations are the most downbeat since March 2020 (-36%, down from -21%).

The organisation also says that new buyer enquiries have seen a third month of negative readings – the net balance is -25% – and this is the longest stretch of falling demand from buyers since the early stages of the pandemic.

Their research shows that this is evident across the UK.

The reasons for the drop in activity is down to higher interest rates and the cost-of-living crisis – though the figures were calculated before the recent Bank of England rate rise.

The continued lack of supply is illustrated by new instructions remaining stagnant with average stock levels on estate agents’ books – an average of just 36 per branch – remaining close to an all-time low.

Little change in the volume of market appraisals being undertaken

RICS says that its research also reveals that respondents have seen little change in the volume of market appraisals being undertaken in relation to those seen 12 months ago, suggesting a material pick-up in the supply of homes is unlikely to emerge in the immediate future.

This lack of supply remains a crucial factor in underpinning continued growth in house prices.

A headline net balance of +63% of respondents reported an increase in house prices during July, and while this is more moderate than a recent high of +78% in April, it is comfortably above the long run average of +13% for this indicator – and is indicative of a firmly upward trend.

RICS also points out that the 12-month price expectations have now eased in each of the last five months, from a net balance reading of +78% back in February to a figure of +30% in the latest results, but this still signals that prices will be higher in a year’s time than they are now.

‘Housing market activity is now losing some momentum’

Tarrant Parsons, a senior economist at RICS, said: “Amid a backdrop of sharply rising living costs, slowing economic growth and higher interest rates, it is little surprise that housing market activity is now losing some momentum.

“With monetary policy set to be tightened further over the coming months, sales expectations point to a further softening in transaction volumes going forward.”

He added: “Nevertheless, with respect to house prices, limited supply available is still seen as a crucial factor underpinning the market.

“Although house price growth is likely to continue to ease, respondents still anticipate prices will be modestly higher than current levels in a year’s time.”



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