Strong tenant demand and falling supply pushes prices higher according to the latest RICS Residential Lettings Survey for November 2010 - January 2011.

Rents rose at a rapid pace in the three months to the end of January, as falling supply of rental properties and strong tenant demand continued to drive rents upwards.

40% more chartered surveyors reported rents rose rather than fell in the three months to January - which is the highest positive reading in the survey’s history. As rents increased, gross rental yields have also risen sharply – they have now increased in each of the last four surveys.

Continued difficulty in securing mortgage finance and large deposits required by lenders remain a barrier to home ownership. As result, many have turned to the rental market and tenant demand has grown rapidly since late 2009. In the latest RICS survey, 32% more surveyors reported seeing a rise rather than fall in demand, with houses more in demand than flats.

Perhaps unsurprisingly, as the recession bites more people are requiring social housing. The survey reveals that the proportion of social tenants has broadly doubled from 6% before 2009 to 11% now. Meanwhile, the proportion of student lettings fell, moving from 9% in the previous survey, to 5% in the three months to January.

Supply of rental property to the market continued to decrease, with 4% more surveyors reporting decreases, not increases, in the three months to January. Interestingly, the percentage of stock from private landlords has fallen from over 80% before 2009 to around 70%. This is indicative of the reduced role of the buy-to-let investor in the market over the past couple of years.

Looking ahead, surveyors remain positive that the market will remain buoyant, with 37% more predicting that rents will rise rather than fall over the three months to April 2011. In all areas of the UK rents are expected to increase, with relatively modest rises in the South West but much more notable increases in London.

It seems that the current buoyant state of the rental market is likely to persist for some time to come, given the challenges facing the sales market. RICS say it is unlikely that finance for first-time buyers will become much more readily available, while uncertainty over the economy may also deter potential homebuyers.

As a result, RICS say that demand for property to rent will remain strong and in all probability will continue to outstrip supply. In this environment, rents will remain on an upward trajectory adding to the pressure on many households whose incomes are already being squeezed by rising inflation prices and the hike in VAT.”