Oxfordshire’s lettings market continues to display its resilience in the face of economic fluctuations. Although not a seismic shift, last year saw a small increase in rental property supply, though nowhere near enough to meet demand in the county. This sustained discrepancy between demand and supply has supported strong rents across our nine offices. Despite last year’s surprise scrapping of plans to increase the minimum energy efficiency standards for rental properties1, it is likely to remain an important topic in the coming year – both in relation to the cost of energy bills and combating climate change.
The economic environment coupled with an upcoming general election makes forecasting tricky, but here is our measured view of the private rented sector (PRS) for the coming year:
Renter demands may change
The series of lockdowns starting in 2020 triggered the increase in rental demand which has hardly eased since. There is still huge appetite for properties as they are listed, and this inevitably pushes up rental prices. It is highly likely that demand for rental properties will remain greater than supply in 2024, impacting renters' affordability. As a result, we may see priorities shift as they move to smaller homes or out of the city centre.
Interest rates will continue to impact rental supply
The increased cost of borrowing has impacted mortgaged landlords, which has in turn affected property supply. It has also stopped some tenants, particularly first-time buyers, purchasing their own home and leaving the PRS. This has a direct impact on the number of properties coming back onto the lettings market. A drop in inflation in November suggests that interest rates may fall this year2 which could positively impact rental stock levels as the year progresses.
Supply from failed sales
Supply of rental property is unlikely to come from housebuilding in 2024; Oxford’s Local Plan 2040 draft proposes delivering just 9,612 new homes over the plan period. This equates to 481 homes a year – significantly lower than the government’s housing need figure of 762 homes a year.
However, we do anticipate more homeowners who are struggling to sell putting their homes up for rent. Towards the end of last year each of our offices saw an increase in people letting their property where they couldn’t sell. For example, a 2-bedroom apartment in Banbury (see photo) which had failed to sell over an eight month period came back to the lettings market in December. It let within 24 hours to a professional couple. Not only did it let quickly, but it achieved a rent 18.9% higher than its previous tenancy.
Rental growth
Interest rates and the supply/demand imbalance have influenced rental prices in recent years. These higher rents have been supported by growth in incomes3 and although rents are expected to keep rising nationally4 due to high employment and sustained demand, in Oxfordshire we anticipate the pace of growth slowing in 2024 compared to 2022 and 2023. Properties in the best condition, or with bills included, will command the strongest rents – a good agent will advise on a case-by-case basis.
Investment
With soaring rental values and easing of some sales prices, serious investors have been snapping up great opportunities recently. The basics supporting the buy-to-let market remain strong with demand outstripping supply, little to no void periods, and rents continuing to rise. With interest rates likely to start coming down, we could see better buy-to-let lending rates coming to the market this year, and potentially improving yields may encourage more landlords to invest. We can help those who are looking - head to www.finders.co.uk/investor
The impact of a general election
Rishi Sunak has confirmed the next general election will take place later this year. Historically, house prices perform better in the last year of an electoral term compared to the first year after an election5 so we anticipate some slowing of the sales market. Again, this could see a proportion of homeowners switching to letting rather than putting their sales plans on hold.
All parties will be keen to win the votes of landlords and tenants, and so attempting to solve the issues affecting the rental market is likely to form a large part of their manifestos, such as: housebuilding, rental reform, and new plans for Minimum Energy Efficiency Standards.
Rental reform could take a step closer to becoming law
After several years of waiting, the Renters’ Reform Bill was launched in May 2023. It has now passed its first and second readings as well as a committee stage. Before reaching committee stage the government announced that the abolition of Section 21 notices would be delayed until after the court system is reformed. Propertymark (the professional body for lettings agents) has proposed a specialist Housing Court, which would remove the pressure of private rented sector disputes from the County Courts and speed up the possession process.
During 2024, the proposed reforms could move closer to becoming legislation, but given the remaining stages it must pass through it’s unlikely that any laws will be implemented until late in the year, potentially even early 2025. It goes without saying that a general election would cause further uncertainty and delays in timelines – though there seems to be cross-party support for rental reform in some capacity.
The importance of the PRS
With mortgage rates remaining high, many would-be first-time buyers have been delaying buying a property and instead renting for longer. With more tenants renewing their tenancies and demand remaining high generally, rental properties are a vital part of the housing market. This is especially true in Oxfordshire, where many people come to work or study for short periods of time. If landlords aren’t encouraged to increase (or even maintain) supply, rental inflation could increase further, impacting tenants to an even greater degree – contrary to the government’s aims with rental reform. As we have stated in the past: establishing legislation that reflects the growing number of renters is fitting, given the increasing size of the PRS. Building confidence in this industry is a good thing, but the proposed changes need to avoid causing more landlords to exit the sector.
1 https://www.theguardian.com/politics/2023/sep/21/green-target-delay-will-lead-to-higher-bills-for-low-income-tenants-say-experts
2 https://www.theguardian.com/business/2023/dec/20/uk-inflation-cost-of-living-crisis
3 https://www.statista.com/statistics/933075/wagegrowth-in-the-uk/
4 Zoopla’s UK Rental Market Report, Dec. 2023
5 https://www.estateagenttoday.co.uk/features/2023/12/the-housing-market-and-the-election--does-it-matter-who-wins
Published January 2024
