London spare room rentals squeezed by surge in tenant demand and low supply

LONDON - London's housing crisis is spreading, with a record surge in the number of tenants looking for rooms to rent far outstripping the places available. The trend, mirrored across Britain, reflects a jump in house prices and interest rates, which have made it less profitable for landlords to rent out their properties.

It also shows record demand from people looking for space in the capital as they return to offices and universities. Data compiled by SpareRoom, a website that matches people seeking roommates, shows that the number of prospective tenants has more than tripled to 106,000 since the pandemic lockdown of early 2021. The number of rooms advertised has declined over that period to less than 15,000.

"The archetypal young professional, who worked at home from their parents' place and saved money on rent, is now going back to living in real places," said Professor Yolande Barnes, chair of University College London's Bartlett Real Estate Institute. "There's an element of pent-up demand."

The squeeze on those seeking a room represents one of the constraints holding back the British economy. Businesses complain they are struggling to find staff to fill jobs and are having to pay people more.

Prime Minister Liz Truss' government also is roiling the market indirectly through its tax-and-spend programme. Chancellor of the Exchequer Kwasi Kwarteng last month announced a £161 billion (S$258 billion) stimulus programme including tax cuts and aid for households struggling with energy bills, saying government borrowing will rise to pay for the programme.

Those measures will stimulate the economy at a time when the Bank of England is trying to rein in inflation from its highest in 40 years. The Truss-Kwarteng package sent borrowing costs spiralling and resulted in banks pulling mortgages off the market, straining the affordability of property.

"For a lot of people, the products that they were relying on disappeared overnight," said SpareRoom chief executive Rupert Hunt. "They will be renting for longer."

Higher interest rates also change the calculations landlords make and "will make people thinking of buying a buy-to-let pretty wary as well," he said.

The number of tenants seeking rooms is rising across Britain but gaining most sharply in London. Demand nationwide only surpassed pre-pandemic levels in July, SpareRoom data shows.

In London, more than seven people are actively looking at each room available. That is roughly double the rate of almost four people in the rest of the country.

The surge in demand reflects students and professionals flooding back to London. Some moved out of the capital in the pandemic and maintain a room in the capital a few days a week for when they must appear in offices. Others are studying or working in low-paying jobs, especially hospitality, which bounced back sharply from lockdown. The supply of rooms if anything is tightening despite that demand.

A survey by SpareRoom found that 16 per cent of landlords were looking to leave the rental market because of increases in costs and lower profit. Many have also quit the market in recent years after former chancellor George Osborne removed tax incentives. BLOOMBERG