The total amount of rent paid in the UK dropped by more than £5billion in the past three years, as millennials jumped on to the housing ladder and Generation Z decided to stay at home with Mum and Dad.
The total amount of rent paid by tenants across Great Britain fell 8 per cent from a peak of £62.4billion in 2018 down to £57.3billion in 2021, according to new research by Hamptons International.
The total amount millennials alone spend on rent has dropped by £9billion or 28 per cent, falling from a peak of £33.3billion in 2017 to £24billion this year.
Generation Z are moving out at a slower rate than millennials, preferring instead to stay with their Mum and Dad until they can afford to buy – perhaps with a 5% mortgage
Rather than a reduction in the amount of rent paid, the fall has been attributed to a drop in the number of people from that generation – defined as those born between 1980 and 1996 and currently aged between 25 and 41 – who are renting.
Collectively, millennials are likely to have paid more in rent than any other generation.
But as the oldest of their cohort start to turn 40, and first-time buyer numbers run at high levels, they are increasingly switching to being homeowners.
Aneisha Beveridge, head of research at Hamptons, said: ‘Leaving home in the middle of a financial crisis, like most millennials did over a decade ago, made buying a home difficult.
‘But as the oldest millennials turn 40, their rental bill is now dropping sharply as they become less likely to be a tenant and more likely to own their home.
‘We expect millennials’ collective rental bill to continue dropping sharply for the next couple of years, before flattening out as those who want, or are able to buy, have already done so.’
Millennials still account for 42 per cent of all rent paid in Great Britain, down from a peak of 55 per cent in 2016.
Gen Z ‘may skip renting altogether’
Generation Z, those born between 1997 and 2012 and currently aged between 9 and 24, are next in line to dominate the rental market.
However, Hamptons has said that the amount of rent that older members of that generation collectively pay is increasing at a slower rate than millennials’ rent spending ever did.
They attributed this to the fact that more of them are deciding to stay at home with their parents for longer.
The proportion of rent paid by millennials is dropping off as they buy their first homes – but it is not being replaced at the same pace by older members of generation Z
This chart shows the total rent paid by members of different generations in 2021
This trend that has been exacerbated by the pandemic, as many preferred to stay in larger, better-equipped family homes rather than moving out to a cramped rented flat or house share.
The combination of millennials getting on the property ladder and more of Generation Z staying at home has led to the net fall in the total rent paid in the UK.
Generation Z’s total rent bill doubled from £1.8billion to £3.6billion between 2020 and 2021, and this figure is likely to double again next year.
‘With fewer millennials renting, the overall amount of rent being paid is falling too. In previous years when the number of renters was growing, this figure would have been pushed back up by the next generation flying the nest.
‘But Generation Z’s bill is growing more slowly than millennials’ ever did when they left home.’
Straight from Mum and Dad’s to owning a home
Beveridge said that the recent increase in the availability of mortgages for those with 5 per cent deposits could see some younger people skipping renting altogether, moving straight from their parents’ house into their first purchased home.
‘While Covid is likely to have prevented many would-be first-time renters moving out of their parents’ home, mortgages for those with small deposits are far more widely available than they were in the five years after 2007,’ she said.
‘This has meant that more generation Z’s are likely to jump the renting stage and become homeowners, as opposed to Millennials who have had to rent for much longer.’
This change could negatively impact the buy-to-let market, with many landlords already looking to exit due to increased regulation and taxes.
Among the older population, Generation X (those born between 1965-1980) has seen its rental bill remain significantly higher than that of Baby Boomers.
This is partly a product of them renting more expensive homes than any other generation. But with the average member of Generation X turning 50 this year, those who haven’t already bought are becoming increasingly less likely to do so.
Cost of renting on the rise
Overall, rents in Great Britain have continued to pick up pace in the past year.
The average rent of a new let in Great Britain rose 7.4 per cent or £75 in August compared to the same month in 2020, and now stands at £1,085 per calendar month.
This reversed the trend seen this time last year, when rents fell 1 per cent annually following the first national lockdown.
Not flying the nest yet: The growing cost of renting could be another factor tempting the younger generation to stay at home with their parents
Southern regions outside of London continued to see the strongest growth in the last 12 months.
Rents in the South West rose 13.9 per cent, followed by the South East (12.8 per cent) and the East of England (10.9 per cent).
London saw the weakest growth, with rents up 1.4 per cent annually, according to Hamptons.
While rental growth in Outer London softened a little to 3.9 per cent in August, Inner London rents continued to recover.
The average rent in Inner London remains 8.8 per cent cheaper than in August 2020, however rents rose 5.8 per cent or £116 between July and August this year.
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