The rental crisis is now costing recruiters

Rising rent bills in UK towns and cities are locking out young professionals from applying to jobs, impacting recruitment targets for businesses already struggling with labour shortages.

22% of SMEs in the UK say that housing shortages are directly affecting their ability to attract and retain staff, according to iwoca’s State of the Nation report. This number rises to 38% for business owners based in London.

Companies are looking for fresh new talent to plug skills gaps for emerging technologies, such as AI. But with ‘generation rent’ unable to afford to live near major business districts, the housing crisis could become a challenge for small businesses hoping to grow this year.

Rent prices hit the roof

It’s no secret that rent costs have been rising in the UK. Partly this is due to inflation, which has pushed up interest rates and made mortgage payments more expensive for landlords.

But with inflation now falling, the housing market is going against the grain. Average rent costs in the UK rose by 9% in the 12 months to February 2024; the highest recorded yearly increase.

As a result, 41% of small business owners told iwoca that they believe the housing crisis in the UK is having a knock-on impact on their firms.

London renters saw costs go up the most, at 10.6%. On average, renters in the Big Smoke will pay £2,035 per month. For context, this amount is around £100 more than a Living Wage worker would earn per month if working a 40-hour week.

Government data shows London and the South-East of England were home to around 1.8 million private sector companies in 2023, representing 34% of the UK business population.

With qualified candidates being priced out of the rental market, firms are struggling to afford local talent, who need higher wages to pay rent. Since 2019, an estimated 3,000 pubs and bars in the capital have closed, as staffing costs add up to a hospitality pay crisis.

Travel woes add to problems

In a speech delivered earlier this month, chancellor Rachel Reeves said the government is taking action to resolve the housing crisis by fast tracking large development schemes.

The schemes are mostly taking place in the UK’s ‘green belt’, largely made up of commuter towns. If delivered quickly, they could help companies to import talent from outside UK cities. Many young professionals have moved to these areas for cheaper rent.

Even for those moving further away from city centres, the transport sector is further complicating the talent conundrum. Rising ticket costs are making the daily commute untenable for many employees.

Six in ten businesses told iwoca that poor transport infrastructure in the UK is negatively affecting their company. 25% cited road conditions, such as potholes, as their most common transport issue. Another 22% said delayed or cancelled trains were the biggest issue.

Rail strikes have forced many company staff members to work from home in order to avoid being late for work and paying for extortionate train fares.

As well as preventing staff from getting to the office on time, the UK’s failing transport system also impacts SMEs who need to travel to see clients or attend appointments.

Could rent chaos delay a return to the office?

The rental crisis may force businesses to rethink flexible work. Some firms are ordering employees to return to the office in order to curb their reliance on remote working. However, demanding in-office working could prove disastrous if staff cannot afford to live close to work.

Startups recently heard from one job applicant who reported that a large energy company, based in London, had rejected them from an interview due to their commute being too long.

Mark Di-Toro, Director at iwoca, said: “The new government is already calling the UK’s 5.5m SMEs the beating heart of the economy and has put growth at the centre of their plans.

“Improving the UK’s public services can play a key role in addressing the challenges that SMEs face. Tackling issues in housing, health and transport will help more companies to grow and attract and retain the staff they rely on.”