Rent

For this week's blog, we have looked at the August 2025 edition of the Office for National Statistics (ONS) report entitled Private Rental Affordability in England, Wales, and Northern Ireland, to assess the ever-widening disparity between UK rents and UK income and have quickly concluded that the UK housing market is facing an increasingly urgent challenge. The data paints a stark picture of where the market is heading. We made a hypothesis almost two years ago now, back in August of 2023, (when bank rate peaked at 5.25% and the working theory in the press was a housing crisis by way of an illiquid mortgage market) that it wouldn't be a widespread inability to borrow that tops out the market, as there is always an institutional bid and cheaper money from somewhere by way of competition, it would be the public’s growing inability to rent that may create a systemic risk to the system further down the tracks. Now that some time has passed, and we're down that track, we look at what happened and ask: Are we still on course to hit that tipping point?

The ONS data shows that, in 2024, private renters on a median household income in England were spending 36.3% of their income on rent. That figure is well above the 30% affordability threshold commonly used to determine whether housing is reasonably priced. In Wales and Northern Ireland, renters were spending 25.9% and 25.3% of their income, respectively, which technically makes housing more affordable, but the trend lines show affordability eroding, particularly since 2021.

The situation is most acute in London, where households are spending 41.6% of their income on rent. All 32 of London's boroughs have been consistently above the affordability threshold for most of the last decade. Outside the capital, major urban centres such as Bristol, Brighton, Bath, and commuter areas like Sevenoaks and Watford also rank among the least affordable. Even in regions where rents remain technically affordable, the margins are narrowing at speed. Rising rental costs are eating into disposable income, leaving households with less money for essentials, savings, or local economic activity. If rents continue this trajectory, the risk of widespread financial strain and even systemic instability in the housing market grows, and, unchecked, we will hit the systemic risk point of a trend change. For low-income renters, the situation is even more dire. In 2023–24, households in the lowest income quintile spent on average 63% of their income on housing costs.

At what point is the market at risk of retracement? Trends and data suggest stress intensifies dramatically once rents exceed 40% or more of income: The Nationwide Foundation has found that, among renters in the bottom half of the income distribution in the private rented sector (PRS), four in ten are already paying over 40% of their income on rent.

So, what exactly do we mean by systemic in this context? Well, in the media, the focus is, and rightly so, on factors such as increasing household stress, with such a large proportion of income going towards rent, it distorts the labour market, and weakens the economy as people have less to spend, but what we really mean here is there is a theory that if affordability worsens beyond a certain point, the demand for rental homes will start to fall off sharply, because supply has increased too slowly, and a lot of households will be unable to pay. That could destabilise large parts of the housing market in ways we haven't yet seen since it has been almost entirely commoditised, to a cut a long story short, generation rent could become “generation live with their parents”, and albeit there are many cultural examples across the world where that’s absolutely fine, it’s not necessarily in tune with the society we have created here, where from a psychological perspective, a sense of self-worth is tied intrinsically to one’s self sovereignty. Or to make the same point in a less verbose and perhaps more whimsical way, it’s trapping people in a diminished childhood state of box rooms and curfews when they should be making their own mark on the world.

So how do we fix this? The most effective solution is to build more homes. Increasing supply will ease competition in the rental market, slow the pace of rent rises, and restore affordability. Building more homes also brings additional benefits: it creates jobs, supports local suppliers, and drives investment. However, Britain has consistently fallen short of its housing delivery targets. Large national housebuilders cannot solve this problem alone. The solution lies in empowering SME developers, who are placed to deliver smaller, community-focused projects, regenerate brownfield sites, and innovate with sustainable building methods.

SME developers bring agility and creativity to the housing sector. Unlike larger firms, they can focus on local needs, tailoring projects to suit specific community demands. They are often better equipped to work on smaller plots of land, infill developments, or regional regeneration schemes that big developers overlook. Despite their potential, SME developers are frequently held back by one critical barrier: access to finance. Traditional lenders tend to favour larger housebuilders, leaving smaller firms struggling with slow processes, restrictive terms, and limited funding. This constrains their ability to scale up delivery and bring forward the volume of housing Britain needs.

This is where our sector plays a pivotal role. As a platform designed to connect SME developers with finance, we provide an alternative to traditional banks by linking projects with investors who want to support impactful developments. By bridging the finance gap, our sector ensures SME developers can deliver the kind of housing supply Britain urgently needs to stabilise rents and safeguard affordability.

The ONS figures are a wake-up call. If rents continue to rise faster than incomes, Britain risks pushing millions of households into hardship and destabilising its housing market. Policymakers, developers, and investors must act now to increase the supply of homes, not only to prevent a crisis but to seize the opportunity of creating a more sustainable, fair, and dynamic housing system. SME developers will be central to this transformation. However, they cannot fulfil their potential without capital, and this is where our sector fills the gap, unlocking the money and enabling local builders to scale up their delivery.

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