The man who sees every rent in Britain

[MUSIC] Hey everyone, it's Robby here with RobD. You will listen to the Prophecy 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. [MUSIC] Yes, welcome to the Prophecy 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 in 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 Donald, who's the Executive Director of Research at Super. And he has wonderful, wonderful data at his fingertips. And the brilliant thing is he's showing that with us today Rob. We'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 show Super 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. So I called 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. We 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 rent 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. It's so crazy to think you've got access to so much data and so much information. It's known where to start. When you've analysed the data, what surprised you the most, what have you looked at and gone, aha, okay, did not expect that. What's so bad for you? What took everyone, though, surprise was just how crazy the competition was for rented homes. You know, we 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. When 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 a quite a decent rate, I mean, more than 5% across more affordable areas. Typically where rents are below 750 pounds a month, and rents are seeking better value for money now. And so you actually have quite a wide variation in kind of what's happening to rents. But again, that interaction of supply and demand has a massive impact on not just where rents are going today, but kind of 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 can be falling behind, but that's the stuff that really doesn't get talked about that often. Look, it's a lot of media today is 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 at 5%, you're going to be, well, that's not me, whereas if you're in Oldham over the last five years or so, you know, you rents in the local market, they've gone up 60% basically. And if you're in parts of Scotland at the moment, rents are still rising in double digits. So, 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 losal housing markets, local rental markets. If the economy's 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 rent is a limited on how much they can pay on rent around affordability. So, yeah, big variations around the country. So if you boil it down to, and you touched on some of this already, 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 around, you know, in areas around sort of Falkirk, at the Kilmarnock, between Edinburgh and Glasgow, areas around Manchester. There is room for people to go and find a better value for money in rents. And so, you know, in markets where rents are averaging less than 750 pounds a month, which is half the national average, more or less. You know, rents are rising at five or six percent 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 anymore. And there's much weaker demand because migration has fallen off. I've got fewer people coming to work and study fewer overseas students. You know, rents are a 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 rents setters. I'm sure they'd 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 Zootpler. But, you know, if you've still got no interest in the property here, you've got a void looming, you know, 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. If a landlord could get away with charging £10,000 a month for a one-bed and older, then I'm sure they would, but the market won't allow it. And the market hasn't 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. And I think that's missed. No, I agree. Look, I think the rental market is far more rationally priced than the sales market where there's sort of a more emotion. I mean, the end of the day rents are typically in a property for four years. They 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 affordability constraint of rents, then you're going to find a real lack of interest, and you're going to have to 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 a month. I think it's such an important point because people seem to have the impression that landlords act as a cartel, but there are so many landlords. You can't get together and coordinate it, even if you want to do. So 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? Yeah, look, I think our rental index tracks, effectively, vacant possession. So a property was a two-bed flat, and Edinburgh was coming for rent today. Empty, it was empty a year ago, you know, what's happened to the level of sort 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 a 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 tenants at 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 into a, in the old world, before the renters rights act, a periodic tenancy. Half of the landlords didn't reset the rent, you know. So I think, actually, there is catch-up rental inflation kind of coming through the system at the moment, as again, because obviously landlords have faced some pretty big increases in running costs, repairs, maintenance, insurance, regulation, higher mortgage rates. And, you know, as we've talked about, landlords can't just put the rent up to as much as they like. They have to sort of 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. And I think, I think, actually, typically, over the long run, the rental market's much more stable where rents typically rise at two to three percent 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 Venter's 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 on which we wrote about in the Sunday Times recently is the effect of the fact that now you as a landlord you can't accept or encourage bids above the asking price and what's been reported in the press is that you've seen landlords go well and 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 tenantsies were agreed at the asking rent. If a small proportion over when the market was running hot, a small proportion below. I did expect that will our rental index suddenly jump upwards, but it hasn't really come through. Again, the same, Birmingham and Nottingham and other places. Rental inflation is pretty subdued. I think a lot of that is because of the market. Demand, when the rental market was red hot, we had migration of 900,000 a year into the UK in 2023. This year, it's supposed to be less than 200,000. The last 10 years, it's in 300,000. We've definitely got a calling in demand coming through overseas students. We're not really seeing a renters rights impact coming through on rent levels, but obviously landlords need to be careful. Yes, you probably want to err on that. If there was a range of rents, you might want to err slightly on the upside. Again, it's how much tenants are used to trying to negotiate on rent. It's not something they've had to do for the last three or four years. We might take a little bit of time for tenants to realise or potentially take the risk as they might see it on bidding below the asking rent. Again, it's how well the agent or the landlord creates the right environment to make sure that people think there's lots of competition. Maybe I should just offer the asking rent basically, but no major change coming through in the data at the moment. Richard, so if you've seen in 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? Yes, there's a real difference, actually, and it was a great question that you guys asked. Yes, so was 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. As only actually, if you look at the average difference between the rents of a flat and the house, it's only about 50 pounds difference over the last five years, basically. I think it's a reinforcer at 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 actually renting space and where they want to live. Obviously tenants don't have service charges, ground rents, the challenges of dealing maybe with freeholders and managing agents in 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. So I suppose logically, it starts, 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 and that they love apartments, that they love houses, but like you say, 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 in the house market is that again, depending around the country, where you are, again, renters because of affordability, you know, maybe they're for going the sitting room now. So there's three beds going into a two bed house, you know, and people are for going that shared living space because of affordability and value for money. So that's one other trend, I think, but I think the same you could apply the same for a flat basically, and that they're kind of living room in a two bed flat might get sort of taken over. And I think it's a theme, and obviously it takes landlords into the potentially slippery slope of HMOs and extra, you know, if you see if you get three people in a property, you know, just one of the licensing rules and this that and the other. So what'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. So 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 are having to create more space almost if we go 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 is there's huge demand in London. They leave rental stock is static or falling, not a lot is getting built. But rents haven't been going up that fast and that's a presuming is because of the affordability point that you mentioned earlier. It has 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. I mean, London is probably one of the rental markets most under pressure and you do feel for renters on affordability. I 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 and 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 and you're absolutely right. That's where we sort of hit this affordability limit. Rent can rise faster than earnings in London if more people start sharing. But I do think I haven't done the analysis but I imagine London must be getting close to kind of peak sharing. But I do think probably and they're going to have done the analysis, I have a gut feel that actually around many cities in the UK, there's probably 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, rents aren't falling in London but they're rising very slowly just because that's supply demand imbalance. But you know, maybe if it's steady, two to three percent rental inflation, that's sort of good for landlords. If earnings are rising at four to five percent, then at least it's less faster than earnings are going up for tenants. 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 of businesses to relocate to London and or for where do I want to start my working life paying 40% of my income on rent to rent or a single room. So that's one of the challenges for London to what extent is it's housing costs have an impact on the economy because you need a strong growing economy to kind of support house buys 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 buys inflation to drive your returns. The model for me has almost flipped on its head since the tax change is 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, the last 20 years rents and earnings and inflation have risen pretty much exactly the same level. So if you're a pensioner or you're thinking about a balanced portfolio, actually that monthly rent link come 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, they kind of love that link basically. So that's for me is what the data is telling me is, investors need to think long-term cash flow, not short-term or house buys inflation or relying on house buys inflation to sort of 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 there's a fingers crossed approach but I've been to market because things are so subdued or the sentiment's probably a better another market sentiment is so down that the yields have just continued to improve because house prices haven't moved that much but it's talked about the incredible amounts of rental inflation that we've had, whereas now it's come at a point where just the yields forgetting what caps growth you may or may not get in the future, just the yields right now making it interesting again for investors. It's just it may take a bit of time for people to notice but like you've said the institutions already have. Yeah and I think the other thing for landlords to do is to let we know everyone's obsessed with the value of their home and what the capital value of their home could be worth. But I just wonder how many landlords keep really, I think it's really to keep tabs on the rental market. And I keep getting this rent of £1,000 a month, £750 a month, but where is the market? And I just wonder, especially for landlords that don't use an agent, I think agents are more likely to review rents on a regular basis. But again, as a landlord, you might think you're doing your tenants a favour by not putting up their rent, or you're happy to get this much money, or you're probably thinking if your direct taxpayer might be paying a lot of it to the tax man, and maybe the tenants can get a benefit from me not putting up the rent, but so I just wonder how many landlords rents would have been around to kill to with the market. And again, it's just something to think about, right? It's no different to reviewing your portfolio, shifting your allocation around, and your stocks and shares' ISO, or your SIP, or whatever. But I think just making sure you're rents in line with the market, I think is just good landlord business practice, I think. 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, Zoupler has ran 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 how rents are tracking across their portfolio, which again brings this point home that if you're in London, or you're in Oldham, or you're in Kermana, or depending where you are around the country, again, I just think it's not easy for landlords to keep tabs on what's happening to rents, and that's why we've built the Zoupler rental calculator. Yeah, well, a link to that in the show notes, I 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 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, with otherwise I can imagine myself doing this. I've done this in the past, I've been lucky enough to have long-term tenants, they've been on periodic tenancies, three, four years have gone by, and I just doesn't even cross my mind, and so it should at least be a decision to make. Which is fine if rents are only rising at one and a half percent a year, right, and so actually there's no real material need, but if all of a sudden rents are up 10 or 15% in a couple of years or something, then, again, as you say, you don't have to go all the way up to that level, but moving in the 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, but actually why is currently they're going right, 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 rents are marked over the next 12 months in terms of growth? Do you see a big difference? You see it up, down, and 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, the first time buyers, you know, rental demands is probably going up and we're just not seeing the growth in supply coming through. So rents are going to keep on rising. They're probably looking at two to three percent rental inflation in the year ahead. I still think, actually, into next year, these more affordable rental markets are going to keep catching up, but 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 of the 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. So they had to place it 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 talked about London as having a great, huge demand for rental housing, but there's no 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 up 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 you know, you can be very forensic about it. But overall, I think we're just going to keep seeing this steady growth in rents. We're just going to have a much steady opinion for rental inflation, which is probably what both tenants and landlords would welcome. Rather than this week's hub extra, it's going to be blatantly obvious, but it's a ridiculously useful tool. It's the landlord calculator tool that they have on Supra. Go to supra.co.uk/lanlord. 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 red 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. And if you want to carry on that winning streak of taking advantage of wonderful, incredible free stuff, then check out property pools as well. It'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 property hub.net/pulse. Well, that's us done for this week. Huge thanks to Richard Donald for joining us on this episode and sharing a slice of that lovely data with us. I hope you found it interesting and as useful as we did. And we'll see you back here for the property podcast next week. Until then, bye-bye.