Don't move to Manchester. There are no flats.

That was the verdict of a widely followed social media influencer after a three month search. Manchester is not alone. A chronic lack of supply is driving a surge in rental prices across the UK.

Rental price growth has surged from 2% a year ago to 12.3% today according to Zoopla's latest rental report. Average rents now stand at £1.051, a rise of £115 over the last 12 months.

These figures apply to new tenancies only. Data from the ONS show an overall rise of 3.4% when renewals to existing tenancies are taken into account.

There is a deep imbalance between the demand for rental homes and rental supply. Supply is 46% below pre-pandemic norms as demand continues to grow and existing renters are staying put rather than move to properties priced at current market rents.

The pandemic bounce back continues

Successive lockdowns saw huge demand for larger homes in greener locations, increasing rental prices in rural areas. Now the pendulum has swung back, with urban areas seeing the strongest gains.

London's rise of 17.8% grabbed the headlines, but this comes from a low base, with the capital's rents having previously fallen by 10%. Two thirds of the UK's largest cities saw rises in excess of 10%, led by Manchester at 15.5%, Glasgow (14.4%), Bristol (12.9%), Birmingham (12.8%) and Edinburgh (12.3%).

Flats over houses

Zoopla reports that the properties in greatest demand are new build flats in or close to major city centre, which they attribute to the economies they bring to renters. Almost all newly built properties achieve an EPC rating of B. Combined with their smaller size, energy bills are 40% lower than a typical house. Zoopla also point to the substantially lower travel costs.

Two bedroom apartments are particularly sought after, with demand up 36%.

The outlook

The report suggests that the current levels of rental price growth will moderate during the rest of 2022 and into 2023. It makes the point that the rate of increase in London is unsustainable as the capital is rapidly reaching an affordability ceiling.

It goes on to say that there is still room for growth in less expensive areas, pointing to the Midlands and Northern England.