Rents in the Capital could plunge and house prices fall amid a ‘mass exodus’ of workers during the coronavirus pandemic, experts have predicted.
A sudden drop in the population of the UK last year has led to a huge rise in vacancy rates in the London and Midlands rental markets, according to analysis by Capital Economics.
Labour market data suggests there was a ‘mass exodus’ from the UK as foreign workers returned home, leading to a drop in the population of around two per cent.
If sustained, the increase in vacancy could cause rents to drop by as much as 20 per cent, according to property experts.
A sudden drop in the population of the UK last year has led to a huge rise in vacancy rates in the London and Midlands rental markets
While rents are falling by at least 6% in most inner London boroughs, several outer London boroughs are still showing rental growth including Havering (2.6%) and Enfield (1.1%)
A ‘halo effect’ emerged in the commuter zones of cities, with rents rising as renters freed from the daily commute looked for homes with more space and gardens amid three successive lockdowns
According to data from Zoopla published today, rents in London are continuing to fall – but across the UK as a whole, excluding London, rents are up 2.3%, matching pre-Covid levels, and demand is up 21% year on year
According to data published by Zoopla today, rents in London are continuing to fall.
Working from home has also affected the market, with average rents in the Capital falling by some 8.3 per cent last year.
Rents in the City of London fell by 17.3 per cent, while rents in Kensington and Chelsea have declined by 12.3 per cent.
Rents in the Capital declined by 2.5 per cent in the fourth quarter in 2020, taking the annual fall to 8.3 per cent – nearly matching the rental declines seen in the aftermath of the Global Financial Crisis is 2008.
Average rents in London are now at the levels last seen in 2014.
There was an annual fall in rents in Edinburgh (-1.8 per cent), Greater Manchester (-0.9 per cent) and Greater Birmingham (-0.8 per cent), Zoopla says.
But in contrast, a ‘halo effect’ emerged in the commuter zones of cities, with rents rising as renters freed from the daily commute looked for homes with more space and gardens amid three successive lockdowns.
Andrew Wishart, a property economist at Capital Economics, suggests the share of vacant rental properties in London may have risen by almost 10 percentage points – a rise from its pre-Covid level of 1.9 per cent.
He told MailOnline: ‘In a worst-case scenario where the population of London remains 8 per cent smaller than before the pandemic, we might see rents drop by 20 per cent.
‘But it doesn’t look like landlords have put all empty properties back onto the rental market.
‘As they may be benefitting from mortgage payment holidays, it could be that they are waiting for demand and asking rents to rebound as COVID-19 restrictions are eased and offices reopen.
‘Foreign-born London residents not returning or being replaced is a big downside risk to the London housing market.
‘If the number of vacant properties were to remain high and rents to drop, we would probably see Buy-to-Let landlords attempting to sell their properties.
‘That would result in in a surge in supply on the house purchase market. So a drop in rents could London house prices down too.’
In London, the population is thought to have plunged by up to eight per cent – or 700,000 people – according to an estimate by the Economic Statistics Centre of Excellence (ESCoE).
The ESCoE research also suggested that the population as a whole across the UK dropped by some 2 per cent last year.
Much of the outward migration was from London and the Midlands – where foreign-born residents are more likely to rent than own their home.
However, there doesn’t appear to be any impact in the South West, Wales, and Scotland where people are more likely to own their property.
ONS data on employment by nationality suggests that the number of foreign citizens in the labour force dropped by some 12 per cent year-on-year in the third quarter of 2020.
According to data from Zoopla published today, rents in London are continuing to fall
Mr Wishart added: ‘Our analysis suggests that the apparent sudden drop in the population of the UK last year has led to a huge rise in vacancy rates in the London and Midlands rental markets.
‘House prices in those regions are also most at risk, both from the direct reduction in demand from foreign citizens, and the risk that landlords respond to higher vacancy and lower rents by selling up
‘The labour market data suggests that there was a mass exodus from the UK last year as people born outside the UK returned home.’
Grainne Gilmore, head of research at Zoopla, added: ‘Changing working, commuting and tourism patterns were felt very quickly in the central London rental market.
‘Now we are seeing the impact in other city centres, although on a more modest scale.
‘Balancing the rental declines in inner cities is the strong rise in rental growth in surrounding ‘halo’ areas and well-connected towns across the UK, reflecting stronger demand in many of these markets among a cohort of renters.
‘Yet it is important to note that most demand among renters living in central cities is within the same area – some renters will have ties to an area through schooling, or non-office based work.’