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Rents are booming for these buy-to-let investors! Time to jump in, or buy this property stock instead?

While designed with good intentions, government strategy to free up homes for first-time buyers by punishing landlords is having a devastating impact on renter’s wallets.

Faced with a rapid rise in tax bills, operating costs and a maze of regulations, buy-to-let investors are exiting the sector en masse, worsening the already chronic shortage of rental properties and thus driving rents skywards. And these rises are no more apparent than in the room rentals segment, as latest data from Ideal Flatmate shows.

Room rents leap 8%!

The online homeshare portal analysed 29,000 room listings in major UK cities and found that, on average, room rents jumped 8% in quarter two from the prior three-month period, to £577 per month.

University cities Oxford and Cambridge led the way with rises of 8% and 9%, respectively, in the last quarter, while rents also rose 8% in Liverpool. Things weren’t quite so rosy on the South Coast, though, and room rents dropped 13% in Bournemouth, making it the worst performing city in the second quarter, while Portsmouth rents sunk 10%.

City

Q1 2019

Q2 2019

% Change

London

£745

£783

5%

Cambridge

£562

£613

9%

Oxford

£544

£588

8%

Glasgow

£588

£550

-6%

Edinburgh

£525

£542

3%

Leeds

£548

£522

-5%

Bristol

£534

£512

-4%

Southampton

£546

£512

-6%

Bournemouth

£575

£500

-13%

Manchester

£464

£477

3%

Liverpool

£438

£473

8%

Portsmouth

£515

£465

-10%

Leicester

£441

£463

5%

Sheffield

£428

£454

6%

Nottingham

£412

£430

4%

Cardiff

£399

£412

3%

Plymouth

£401

£389

-3%

Birmingham

£364

£380

4%

Newcastle

£350

£367

5%

Belfast

£270

£275

2%

Aberdeen

£266

£272

2%

UK

£535

£577

8%

Source: Ideal Flatmate

On a national basis, room rents have staged an impressive jump, I’m sure you’d agree. But Ideal Flatmate didn’t put the rise down to the aforementioned supply/demand gap in the rentals market. Instead, it blamed the introduction of the Tenant Fees Act in June and landlords’ subsequent attempts to claw back money by hiking rents, a development which perfectly reflects the tough conditions in which proprietors now find themselves operating.

So don’t get pulled in by rising rents, I say. Landlords are finding it increasingly hard to defend returns, and with government policy to increase the nation’s housing stock failing, it’s quite likely property owners will continue to bear the brunt of this.

A better property play

Why take the plunge in the increasingly hostile world of buy-to-let when there’s so many better ways to make big money from property?

Take Unite Group (LSE: UTG), for instance, the major provider of student accommodation. It’s also riding the wave of intense rent rises in university towns such as Oxford and Cambridge and, last week, declared that rental growth across its rooms had driven the value of its total property portfolio 1.3% higher during Q2, to £2.4bn.

Demand for student accommodation is going from strength to strength, and this was illustrated by application figures just released from university and college admissions service UCAS. The number of applicants for UK universities for this academic year have risen in both Britain and across the European Union, while those applying from outside Europe have surged 8% year-on-year to record levels.

It’s not a shock to see City analysts, then, predicting that Unite Group will keep doling out double-digit improvements in annual earnings — rises of 13% and 10% are predicted for 2019 and 2020, respectively. And this means investors can enjoy inflation-bashing dividend yields of around 3.5% through this period too.

So forget about buy-to-let, I say. This FTSE 250 stock is a much better way to play property markets, in my opinion.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.