Zoopla is warning that rental reforms will limit investment in the private rented sector, reducing the number of homes to let and pushing rents higher.

While the market has improved slightly—rental supply is up 11% and demand has fallen 17% due to lower immigration and more tenants buying homes—rental inflation remains a concern. The average UK rent for a new let is now £1,284pcm, up 3% year-on-year, the slowest growth in 3.5 years, driven by affordability constraints rather than increased supply.

Letting agents now have an average of 13 homes available, up from 10 in 2023 but still 22% below pre-pandemic levels. There are currently 12 renters competing for each available property—down from peak levels but still double the pre-pandemic norm.

New investment in the sector has been constrained since tax changes in 2016, further exacerbated by higher mortgage rates since 2022. As a result, the private rental stock has remained static at around 5.5 million homes. Demand has outpaced supply, driving rents up 24% over the past three years.

While rental demand has cooled across the UK, regional variations persist. London has the slowest rental growth (1.1%), while Northern Ireland (9.0%) and the North East (6.3%) see the fastest increases. Localised factors also play a role, with rents falling in Nottingham (-1.2%) but rising sharply in smaller cities like Blackburn (10.1%), Stoke (9.8%), and Rochdale (9.6%).

Zoopla warns that Labour’s Renters’ Rights Bill will increase costs and complexity for landlords, potentially discouraging investment. Additionally, proposed energy efficiency regulations requiring private rentals to have an EPC rating of ‘C’ or above by 2028 could lead to supply reductions, as nearly half of rented homes currently fall below this threshold.

Richard Donnell, Zoopla’s Executive Director, highlights that rental growth is now being constrained by affordability rather than increased supply. While rents are rising more slowly than wages, demand will continue to exceed supply in 2025, sustaining upward pressure on rents. Zoopla forecasts a 3-4% rent increase next year, with slower growth in major cities but faster rises in more affordable areas.

Donnell emphasises that rental sector reforms should be carefully designed to avoid unintended consequences that could worsen supply shortages, disproportionately affecting lower-income renters.