Fewer Landlords, More Tenants: Are We Witnessing the Next Rental Market Crisis?

There seems to be a problem emerging in the private rented sector, and it's one that should concern landlords, tenants and policymakers alike.

We need more homes to rent. That is obvious to anyone. Yet, at the very time when demand for rental accommodation appears to be growing again, the number of properties being made available by landlords continues to fall.

It's an uncomfortable combination, and one that threatens to place renewed pressure on an already stretched rental market.

The latest figures from the Royal Institution of Chartered Surveyors (RICS) suggest that this imbalance is becoming increasingly pronounced.

So, are we heading towards another rental market crisis? And, perhaps more importantly, are recent changes and interventions responsible for helping to create it?

What the latest figures tell us

We have written recently about the changing shape of the lettings sector, and how smaller private landlords are increasingly giving way to corporate landlords and build-to-rent developments. But while these larger operators may be helping to fill the void, there's a growing question about whether they're doing so quickly enough.

I mention this in case it feels like going over old ground, but today’s thoughts are prompted by October’s RICS Residential Market Survey, published this week. The findings seem to back those previous views and reveal a notable shift in the rental market.

Tenant demand returned to growth, with a net balance of +7% of surveyors reporting an increase, compared with -1% previously.

Meanwhile, landlord instructions registered a net balance of -30%, suggesting that the supply of new rental properties continues to contract – quite significantly so.

Perhaps unsurprisingly, expectations for rental growth have strengthened considerably.

A net balance of +41% of surveyors now expect rents to rise over the next three months, up from +29% in the previous survey. That's the strongest reading since early 2024.

These figures are survey indicators rather than literal percentage changes in the number of tenants or properties. Nevertheless, they paint a fairly clear picture.

Demand is increasing. Supply is struggling to keep pace. And rents are expected to rise as a consequence.

London's particularly difficult position

Here in London, that imbalance is arguably even more concerning.

According to Rightmove's latest quarterly Rental Price Tracker, tenant demand in the capital was 6% higher than a year earlier, while the number of available rental properties had fallen by 9%.

The average advertised rent in London reached £2,825 per calendar month, an increase of 3.2% over the year.

For tenants, these are clearly challenging figures, particularly when household budgets remain under considerable pressure.

But this isn't simply a question of landlords charging more because they can. It's a question of there being insufficient accommodation available to satisfy the demand.

And that's a much more difficult problem to solve.

Why are landlords becoming reluctant?

Higher borrowing costs, increased maintenance expenses, taxation, regulatory changes and uncertainty about future requirements have all influenced the economics of property investment.

None of these factors necessarily makes being a landlord unviable. However, taken together, they can alter the calculations considerably. Many landlords have commented on the compound effect.

For some landlords, particularly those with substantial mortgage commitments, margins have become increasingly tight.

Others have naturally been reassessing whether the financial returns justify the responsibilities and risks involved.

The Renters' Rights Act has also introduced significant changes to how landlords operate.

Many of these reforms are intended to improve standards and provide greater security for tenants.

Those are worthwhile objectives, but there is an important distinction to make between improving the quality of rental accommodation and inadvertently discouraging the investment needed to provide it.

The October Budget has added another consideration, with property income tax rates for individual landlords scheduled to increase to 24%, 44% and 49% from April 2027, as we wrote about at the time.

For some, that is just another reason to reconsider their investment.

Of course, we shouldn't assume that every landlord considering selling is doing so because of taxation or regulation. Equally, we cannot ignore the cumulative effect of these pressures.

Where do tenants go if landlords leave the market?

This is perhaps the fundamental question to be asking.

When a landlord sells a rental property, that doesn't necessarily mean a home disappears from the housing market.

It may be purchased by another investor, in which case the property remains available to rent.

Alternatively, it may be bought by an owner-occupier, including a first-time buyer who is leaving rented accommodation themselves.

But where rental properties are being lost faster than new ones are being added, the consequences for those who remain dependent on the private rented sector can be considerable.

Fewer available homes mean less choice, greater competition and potentially higher rents.

And there's another complication.

Higher mortgage rates are making homeownership harder to achieve, particularly for first-time buyers in London. Some prospective purchasers are therefore remaining in rented accommodation longer than they originally intended.

At the very moment that rental supply is becoming more constrained, demand may be increasing for precisely the same reason.

It's tricky to square that circle.

Are we trying to solve one problem but creating another?

There is a legitimate argument that the private rented sector needed reform.

Tenants should expect safe, well-maintained homes, fair treatment and reasonable security. I don’t know anyone in the industry who doesn’t share that view.

Responsible landlords should also be able to expect clear rules, workable procedures and an opportunity to earn a reasonable return on their investment.

Those objectives needn't be mutually exclusive. Indeed, a healthy rental market depends upon both.

The difficulty arises when the debate becomes a contest between landlords and tenants, rather than a discussion about how we provide enough good-quality homes for everyone who needs them.

Making life more difficult for poor landlords is one thing. Making investment less attractive to responsible landlords is quite another.

And if the overall result is a reduction in available accommodation, tenants may ultimately bear some of the consequences.

A more balanced approach

At Your Home Managed, our view is that the future of the private rented sector depends upon professionalism, good management and a sustainable relationship between landlords and tenants.

Landlords must understand their obligations, maintain their properties, manage costs carefully and take a long-term view of their investment.

For tenants, it’s about having access to well-managed, appropriately priced accommodation and knowing that their rights will be respected.

And for policymakers, it should mean recognising that improving standards and maintaining sufficient housing supply must go hand in hand.

The latest RICS figures don't prove that another rental crisis is inevitable, but they do provide a timely warning.

We cannot expect more homes to become available if existing landlords become less willing to provide them – not without the corporate and build-to-rent sectors both expanding quick enough to fill any void.

If we want a rental market that genuinely works for tenants, we also need an environment in which responsible landlords have good reasons to stay.