The Impact of Immigration on Rental Prices

The surge in immigration has caused a significant rise in rental prices, with concerns growing that proposed reforms by Michael Gove could further decrease the housing supply. Recent analysis reveals that the majority of the record rent growth observed in the UK over the past year can be attributed to a large influx of individuals entering the rental market from overseas.

Imogen Pattison, an expert from Capital Economics, explains that the net immigration figures have created a demand for an additional 205,000 rental properties. These statistics have emerged at a time when Housing Secretary Michael Gove is pushing forward with his Renters Reform Bill, which seeks to eliminate no-fault evictions and impose stricter regulations on the private rental market. Critics of the bill argue that it will drive more landlords to exit the market, particularly following years of tax burdens.

Conservative MP Marco Longhi has urged the government to reconsider the bill, highlighting the severe shortage of homes in the rental sector. Longhi emphasizes the need to increase the housing supply to accommodate the substantial influx of immigrants, suggesting that the Renters Reform Bill could exacerbate the issue and result in a perfect storm.

Recently released data from the Home Office reveals that net immigration reached a record high of 606,000 individuals in the year leading up to December. Considering an average household size of 2.37 people, this translates to a surge in housing demand of approximately 256,000. Private rentals have experienced the most significant impact from this increase. Previous analysis conducted by the Office for National Statistics demonstrates that at least 80% of individuals arriving in the UK initially move into private rented accommodation for the first few years.

Based on this estimation, the number of households seeking rental properties has likely grown by 4.4% between March of last year and this year, leading to a four-percentage-point decline in vacancy rates. Studies conducted in the United States indicate that a 1% decrease in vacancy rates typically corresponds to a 1% rise in rents. Pattison suggests that this could mean net immigration in the UK has driven rent prices up by as much as 8%.

This surge in rental prices has accounted for three-quarters of the 12.1% year-on-year rent growth observed in December, according to Zoopla's property index. Benjamin Trevis from the Centre for Economics and Business Research points out that the impact of immigration on rent prices is primarily concentrated in cities. Nearly half of the foreign-born population in the UK resides in London and the South East, with London alone accounting for 35%. Consequently, London experienced an annual rent growth of 17% in December, significantly surpassing the national average. Other major cities such as Manchester and Glasgow also witnessed substantial rent increases of 15.6% and 14.1%, respectively.

Trevis highlights that supply-side challenges exacerbate the impact of increased demand and have the potential to drive rental prices even higher. Since the relaxation of lockdown restrictions in the summer of 2021, rental prices have skyrocketed across the UK, coinciding with the return of workers to cities, the influx of international students, and the lifting of overseas travel restrictions.

The Home Office's migration data reflects a new record for net migration, surpassing the influx of 504,000 people recorded in the year leading up to June 2022. The government has increasingly relied on high levels of migration to fill workforce gaps, particularly in the health service. The number of individuals arriving in the UK on permanent working visas surged by nearly 100,000 in the year ending March 2023, representing a 97% increase and approximately four times the pre-pandemic and pre-Brexit levels. A significant factor contributing to this growth is the 171% rise in skilled workers in health and care, equating to an additional 64,130 individuals compared to the previous year. These visas constituted more than half of all "worker" visas granted during the year ending in March 2023.

Responding to concerns, a spokesperson from the Department for Levelling Up, Housing, and Communities (DLUHC) stated that there is no evidence to support claims that the proposed reforms will hinder rental supply and drive landlords away from the sector. The spokesperson emphasizes that the private rented sector has doubled in size since 2004, providing landlords with ample reason to remain in the market. The DLUHC argues that the reforms will benefit 11 million tenants across England by ensuring safer, fairer, and higher quality homes while enabling landlords to swiftly address problematic tenants.