Market rents have been through a volatile period. A large imbalance between supply and demand drove double-digit rental growth in 2022, stretching rental affordability to record levels. We expect to see a more stable private rented sector (PRS) over the next five years as demand falls back to align with long-term norms. However, affordability is unlikely to improve as supply remains low in the wake of the Renters’ Rights Act (RRA) and private individual landlords continue to drift away from the sector.

Short-term disruption or long-term change?

The RRA came into force in May 2026, representing the biggest change in the market for 30 years. A key question for our forecasts is to what extent changes in the market over the last year are short-term responses to the new regulation or are indicative of longer-term trends.

After a brief period of improving affordability, rental growth has begun to accelerate. According to Zoopla, annual growth reached 2.6% in September, compared to 1.6% in February. This could be a short-term distortion; the RRA banned agreed rents being above asking levels, so advertised rents are likely to have increased. This means the indices may be overestimating the increase in rent experienced by tenants.

At the same time, demand has increased according to the RICS survey. It climbed throughout 2026, reversing the trend of cooling demand over the previous two years. But it is hard to tell yet which is the key factor driving rental growth.

A supply shortfall

There is much more clarity around the supply of homes for rent. Since 2016, landlords have faced changes to tax and regulation that have increased the costs and risks associated with being a landlord.

At the same time, the return on investment in rented homes has fallen, as higher mortgage rates have reduced the profitability of mortgaged buy-to-let. Other investment assets have also offered the potential for higher or less risky returns; average UK rental yields currently offer no premium over gilts.

The result has been many landlords selling out of the sector. Indeed, capital gains tax data indicates there has been an average of 202,400 disposals of investment properties or second homes over the past five years.

So far we estimate that the rental market has lost a net figure of 240,000 homes over the past four years. Although we expect a slight boost to mortgaged buy-to-let investment over the next five years as interest rates fall, it won’t be enough to reverse the trend.

Build to Rent (BTR) is often cited as the solution to this outflow of private landlords. But the sector remains a small part of the rental market. 22,000 new rented homes were completed over the 12 months to September 2026, bringing the number of operational BTR homes to 168,000.

Nor will we see a high volume of new purpose-built rental homes added to this number. BTR housing starts have fallen by over 70% over the last year, hit by the same viability headwinds facing the wider development sector. A lack of supply will be the key characteristic of the rental market throughout our forecast period, providing the main driver for rental growth.

Robust but stable tenant demand

Tenant demand has been growing over the course of 2026, but remains much more stable than during the surge in demand of 2021–23, which was driven by high international net migration.

Over the next five years, the Oxford Migration Observatory forecasts annual net migration in line with the 2012–2017 average of 230,000 per year. As a result, we expect tenant demand will return to a level that was typical during the mid-2010s. This was a period when rents grew more in line with income growth.

It was also a period when first-time buyers were able to access support to buy a new home through Help to Buy. That scheme had a strong effect on rental demand from those in the key 25–34 age group for first-time buyers. The introduction of Your First Home offers a similar route into homeownership, which could moderate rental demand. But its effect is likely to be smaller than Help to Buy.

A return to normality for rental growth

Changing levels of demand have been the key driver of rental growth over recent years. At a headline level, the outlook is much more stable over the next five years.

There is headroom for rental growth, thanks to the improvement in rental affordability over the last two years. The ratio of average rent to average household income sits at 32% in the UK and 37% in London, compared to a peak two years ago of 34% and 39% respectively.

The supply challenge, however, will be a consistent and growing problem. The rental market has already shrunk, and we expect this trend to steadily continue, with a risk that supply becomes even more constrained as more regulation comes into force over the next three years.

Given the pressure on rental supply, we expect rents will grow faster than wages until the end of 2027.

From 2028, we expect UK rents to increase broadly in line with household income growth. Crucially, this assumes we do not see an acceleration of landlords leaving the sector, compounding supply shortages, driving rents higher and stretching affordability further. It remains a not insubstantial risk.

In London, the supply challenge is more severe, and tenant demand will be underpinned by economic growth that outperforms the UK average. We therefore expect rents in the capital to increase faster than the UK average, with little potential for rental affordability to improve over the next five years.

^{Note: These forecasts apply in the mainstream market only. Rents for prime and purpose-built stock may not behave in the same way.}

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Understanding the Renters’ Rights Act

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