The recent surge in rental growth to a record high has been widely reported, but the usual explanations are unsatisfactory, according to Andrew Wishart, senior economist at Capital Economics.

Wishart commented: “Population indicators don’t suggest a sudden rise in demand, and there is little evidence of landlords selling up. Instead, we think that renters choosing to live alone rather than in house shares has led to a big drop in effective supply compared to before the pandemic.

“Rental demand is outstripping supply. Rightmove reported a 20% y-o-y increase in tenant demand in Q3 while the number of properties listed to rent was down by 9% y-o-y. Meanwhile, as of August this year, SpareRoom had 107,000 people looking for somewhere to live (compared to 79,000 in August 2019) and just 15,000 rooms available (down from 28,000 pre-pandemic).

“The result has been an acceleration in growth in the Zoopla rent index to over 12% y-o-y. But it’s not clear that aggregate rental demand is higher, or that supply is materially falling. Instead, we think that homeworking has caused many to choose to live alone rather than in a house share. Indeed, the number of people renting alone rose by 0.53m in 2020-21 compared to the year before, while the number of people renting in a household of three or more fell by 2.0m. That shift implies a widespread repurposing of bedrooms to other uses such as studies.”