Average asking rents, like underlying house prices, vary significantly across Great Britain.

The variation in rental levels across London is particularly extreme, ranging from an average annual asking rent of £9,980 (£830pcm) for a two bed property in Bexley to £48,230 (£4,020pcm) in Kensington and Chelsea.

Beyond the capital, there are a range of factors that dictate rentals at a local level, though proximity to London tends to equate to higher rents. In the South East, the average annual asking rent for a two-bedroom property is over £10,300 (£860pcm), while it is below £6,170 (£515pcm) in the North East.

Regional rental markets

Across the 30 largest rental markets outside of London, two-bedroom annual rents vary from £15,800 (£1,320pcm) in Elmbridge to £5,670 (£470pcm) in Bradford.

The five markets with the highest rental value (Elmbridge, Oxford, Brighton and Hove, Woking and Reading) are all located in the South East where the average two-bedroom rental value exceeds £10,000 per annum in each. The five markets with the lowest rental value (Bradford, Kirklees, Warrington, Sheffield, Coventry) are all located in the Midlands and the North.

However, there are markets that do not follow the orthodoxy of
a north-south divide. For example, the average rent for a two-bedroom property in Manchester (£8,600pa / £720pcm), being 15% higher than in Leeds (£7,450pa / £620pcm), exceeds that of Medway and Colchester.

Affordability issues

It is clear these disparities in rental values are not merely a function
of different income levels. In October 2011 Shelter looked at affordability by comparing the median rent for a two-bedroom property to median salary.

As the profile of the rental demand is shifting to increasingly affluent groups excluded from home ownership, so we expect rental affordability to be driven by mean rather than median incomes.

Accordingly, our preferred measure is to look at relative levels of rental affordability by comparing mean average rents for two-bedroom properties and mean average incomes.

As an average across the local authorities of Great Britain the average annual rent for such a property equates to 31% of the average local salary. In London the average rises 53% and across
the South East it is 35%. By contrast, in the East Midlands and the North East the average is 25%, albeit actual disposable income levels are lower.

This demonstrates the extent to which demand for housing is met by existing supply within the private and social rented sectors is at least as important as affordability in setting rental levels.

It is clear there are affordability issues for those confined to the private rented sector in certain markets. These are not just restricted to the more expensive London boroughs. Oxford and Brighton & Hove are two classic examples. In these two markets, where demand clearly outstrips supply, the average rent for a two-bedroom property equates to 57% and 47% of average salary.

Practical implications

Within these markets, landlords face a trade off between maximising rents and maintaining a secure income stream.

In some cases the pragmatic solution will be to rein back rental expectations to limit the risk of a default on rent and avoid the subsequent costs of recovering unpaid rent.

Some tenants will move to lower cost locations within a town
or city and we believe shared renting, already common in London,
will become more common as the most economical way for
single people to rent. Across Britain, average monthly rents per bedroom fall from £533 per bed for one-bedroom properties to £349 per bed for two-bedroom properties to £293 per bed for three-bedroom properties.

Supply requirements

Issues of rental affordability will only really be improved with a significant injection of new housing stock, particularly private rented housing, into the market. And what is clear is that socalled ‘accidental landlords’ and cash rich private investors will not supply new private rented stock in anything like the volumes needed.

There are examples of well supplied markets in the South East where rents, both prime and mainstream, are much more in line with the UK average in comparison to average salary. In Elmbridge in Surrey, the most expensive of our 30 markets outside of London, the average two-bedroom rent is 35% of average salary.

Milton Keynes provides a very good example of a mainstream market where there is a healthy supply of new stock delivering greater rental affordability and here the average rent for a two-bedroom property is 32% of average salary.

More supply, across all tenures, can ease rental pressure and
will help to improve the quality of the private rented housing stock. According the English Housing Survey over 37% of private rented dwellings failed to meet the decent homes standard in England
in 2010.

Ultimately though, delivering that supply comes down to the investment credentials of residential rental markets.

Taken from
Special Report: Rental Britain