The headline story is stark: in the latest RICS survey, new landlord instructions plunged to –38%, the weakest reading since May 2020, even as tenant demand held broadly flat at –1%. That divergence speaks volumes — supply is draining, while demand remains. RICS expects rents to climb by around 3% in the next year, and predicts that affordability pressures will intensify well into 2026.
In short: the withdrawal of landlords is creating a vacancy crunch that will increasingly push up rental costs and squeeze tenants’ budgets.
But to really understand what’s happening (and what may yet come), it helps to look under the hood — the drivers, the regional differentiation, the structural risks — and to ask: is this shift temporary or indicative of a more fundamental reorientation of the PRS?
Why Are Landlords Leaving?
The RICS data provides strong symptomatic clues; the root causes lie deeper. Below are some of the key pressures pushing landlords out, or at least holding them back:
1. Rising Costs & Margin Compression
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Finance & interest rates: Many landlords are exposed to higher financing costs (interest rate resets, tougher lending terms) which squeeze yields.
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Maintenance, compliance, insurance: The burden of upkeep, regulatory safety standards, and insurance premiums (especially for older stock) has steadily increased.
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Taxation & fiscal uncertainty: Prospective or actual tax tweaks — e.g. on capital gains, stamp duty equivalents, landlord income taxation — elevate risk and reduce the attractiveness of long-term holding.
The result: many small and mid-sized landlords are no longer confident of a reasonable ROI, especially given ongoing uncertainties.
2. Regulatory & Legislative Pressure
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Upcoming changes (or proposals) in the renters’ rights regime, “no-fault” evictions, and stricter safety or energy performance regulations are seen as additional burdens.
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Because regulatory risk feels less under control, some landlords prefer to exit rather than be caught in a shifting legislative landscape with retroactive costs or obligations.
3. Alternative Uses or Sales Incentives
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Some landlords see more upside (or at least less regulatory risk) in selling their properties, especially when residential sales remain viable in certain markets.
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Others may convert properties to other uses (e.g. short-lets, holiday lets, owner occupancy), or redeploy capital elsewhere.
4. Sentiment, Uncertainty & “Wait and See”
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A large part of the survey’s message is about sentiment: rising caution, hesitation, and the anticipation of further tax or policy changes.
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Landlords, especially those with thinner margins, may be opting for “pause and see” rather than doubling down.
In aggregate, what we’re seeing is not just a temporary pullback but a structural thinning of supply — one that could persist if the push factors don’t reverse.
Effects Across the Rental Market
Tightening Supply
The most immediate and visible effect is the contraction in available rental units. With fewer new lettings entering the market, choice is reduced. That amplifies competition for desirable homes and drives down vacancy rates.
RICS itself notes that the imbalance between supply and demand is worsening, and that this is one driver behind expected rent increases.
Upward Pressure on Rents
Even in a soft sales market, the rental sector faces its own dynamics. Given constrained supply and steady—or at least not falling—tenant demand, rents are set to rise. The RICS forecast of ~3% over the next 12 months is moderate but meaningful in view of wage pressures and cost-of-living constraints.
What’s more, in some areas where supply is more acutely restricted, rent growth may exceed the national average.
Affordability Squeeze & Tenant Stress
Here’s where the human story becomes sharper: we are likely to see rising tenant stress. As rents climb while incomes are under pressure (from inflation, stagnating wages, or rising living costs), more tenants will struggle. Some possible outcomes:
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Higher rent-to-income ratios, leaving less cushion for other essentials.
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Increased tenancy turnover (as households try to downward-flex) or shared-occupancy arrangements.
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Growth in informal or unregulated sub-letting to reduce per-person cost.
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The risk of arrears or defaults, particularly among more financially vulnerable tenants.
In some areas, this might accelerate calls for rent caps, stronger tenant protections, or other regulatory interventions.
Interplay with the Wider Housing Market
One striking feature in the RICS results is the contrast: while the rental market shows signs of heightening tension, the sales market remains soft and cautious. In September, buyer enquiries slipped to –19%, agreed sales hit –16%, and house price balances sat around –15%.
This dual pressure—weak demand on the sales side, and shrinking supply on the rental side—places the overall housing sector in a kind of stasis, lacking a clear catalyst. The upcoming Budget, speculation over property taxes, and mortgage rate expectations are all weighing heavily on sentiment.
There is also a feedback loop: as landlords sell up, those properties may enter the sales market (increasing sales supply) rather than the rental market — further thinning rental stock while adding to the glut in resale listings.
Regional & Segmental Nuances
It’s not uniform everywhere. Some key differentials to watch:
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High-demand urban or university areas will feel the squeeze more keenly. Landlords in these areas are often more professional and tied into letting markets, so their exit can have outsized effects.
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Lower-demand or rural geographies may see less dramatic exits; where yields are already tight, the temptation to exit was lower to begin with.
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Property types matter: cheaper, smaller units tend to see higher demand pressure relative to luxury or high-end homes.
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Local economic strength: regions with stronger employment prospects may see tenant demand more robust, cushioning rent growth; weaker areas may see more divergence.
If one reads between the lines of RICS regional breakouts, areas such as Southeast England, East Anglia, and the South tend to show stronger downward pressure on residential sales and supply than some of the peripheral or northern regions.
What the Future May Hold: Scenarios & Risks
Baseline Scenario: Slow Drift Up in Rents & Continuing Exit
If current trends continue, the PRS will keep shedding supply gradually, rents will rise in line (or slightly above) inflation, and affordability pressures will mount. Tenants may adjust behavior (longer tenancies, sharing, moving further out) but the structural tightness remains.
Upside/Policy-Driven Scenario: Rebalancing via Supply or Regulation
Should the government introduce strong incentives (e.g. tax breaks, subsidies for build-to-rent, easing planning constraints, or landlord-friendly reforms) there is scope to arrest the exodus or attract new institutional investment into the PRS. That could relieve pressure over a multi-year horizon.
But this depends heavily on political will, funding, and how quickly such interventions can scale.
Risk / Stress Scenario: Sharp Corrections or Lurches
In a worse outcome, a sudden regulatory shock (for example, retrospective obligations, rent caps, or punitive taxes) could accelerate landlord flight, reduce mortgage availability for buy-to-let, and push the rental market to crisis levels in some areas. That might trigger forced moves, higher evictions (ironically), or increased involvement of social housing.
Implications for Stakeholders
For Landlords / Prospective Owners
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Review margin resilience carefully; small shocks may tip borderline investments into loss-making.
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Be wary of regulatory risk and maintain contingency buffers.
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In growth-geared or build-to-rent models, scale may help absorb downside volatility better than small individual holdings.
For Tenants / Renters
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Expect rent increases; budgeting will need to anticipate upward drift.
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Give priority to longer-term tenancies or fixed-rent agreements where possible.
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Be alert to emerging schemes, protections, or subsidies (e.g. housing benefit adjustments) in high-pressure areas.
For Policymakers / Local Authorities
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The current exodus underscores the urgency of supply-side interventions: more social housing, incentives for PRS investment, easing planning, and landlord-friendly schemes.
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Tenant protections should be balanced carefully: overly harsh regulation may accelerate the exit dynamic.
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Monitoring and targeted support in high-pressure areas (inner cities, university towns, growth corridors) may be necessary.
For Investors / Developers
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Build-to-rent (BtR) vehicles may gain further appeal, especially where institutional capital can manage regulatory and operational complexity.
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Adaptive reuse or mixed-tenure models could help cushion against strict regulatory regimes on pure PRS.
Final Thoughts & Key Takeaways
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We’re entering a tighter rental era. The withdrawal of landlords is not just episodic but symptomatic of deeper cost, regulatory, and sentiment pressures.
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Rents will rise; affordability will suffer. The survey’s rent forecast (~3%) may be conservative in strained zones.
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The risk of over-correction looms. Bad policy or panic exits could precipitate sharp dislocations.
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Solutions lie in balanced action. Boost supply (both private and social), stabilize landlord confidence, and protect tenants — there is no silver bullet.