London rental price growth is slowing as affordability constraints 'start to bite'

Rents in London are now so high that "affordability constraints are starting to bite", causing the market to dip. Data from the Office for National Statistics (ONS) shows the pace of private-rental growth slowing in the UK to 0.5% in the three months to July compared with the previous quarter, representing a near two-year low.

While year-on-year private-rental growth is accelerating in seven of the nine regions of England and Wales, the research consultancy Capital Economics noted that in London it had slowed from 3.9% to 3% in July.

Rents in London have grown much faster than pay over recent years. Data from the property firm LSL put London's average monthly rent at £1,220 ($1,612) in May, 50% higher than the national average of £792. But incomes in the city are only 26% higher than the national average, said Capital Economics.

"Since 2011, rents in most of the country have broadly tracked or even lagged the growth in earnings," said Capital Economics in a research note.

"In London, by contrast, rental growth has swamped the growth in incomes. Accordingly, London's slowdown is probably evidence that affordability constraints in the capital's rented sector are starting to bite. Viewed in this way, it seems unlikely that the dip in rental growth in London will be short lived."

Rent growth in London is fuelled by a housing shortage. Around half of the 50,000 homes estimated by City Hall to be needed to meet demand are built a year.

London's population is growing, predicted to hit 10 million within a decade, putting extra strain on the city's housing stock. High house prices are also pushing more households into the private rental sector, driving demand up.