The Government via the Department for Communities and Local Government has published its annual English Housing Survey which provides an in-depth look into the state of the housing market and housing stock in England during 2015/16.
One finding which is most striking is the continuing drop in the proportion of home owners vis-à-vis those now renting. Despite the Conservative’s policy of encouraging home ownership over many years, ownership has now fallen to its lowest level since 1985.
Owner occupiers in 2015/16 (the latest available figure) represented 62.9% of UK housing stock, whereas, this compared to 63.6% in 2014/15, and a peak ownership proportion of 70% in 2003. The downward trend is looking more and more of a permanent feature of the English housing market and as such has been acknowledged in the Housing White Paper published in March 2017. The Government has indicated a change in policy away from ownership as opposed to renting. From now on increasing resources are to be applied to providing more affordable rented accommodation.
These figures reflect the rapid rise of the English private rented sector (PRS), over the last 15 years, effectively more than doubling in size since 1999 – renting now represents 20% of the housing market, or around 4.5 million homes.
Several factors have been at work to in increase both supply and demand in English rented housing.
On the supply side:
- Removing rent controls and security of tenure for life freed-up the rental market from the introduction of the 1988 Housing Act by Margaret Thatcher.
- The buy-to-let mortgage enabled investors to buy residential property at domestic mortgage rather than commercial mortgage rates, funding the growth of the sector by private means as council social housing went into rapid decline.
- Ultra-low interest rates following the market crash in 2007 mean that people (buy-to-let investors) were looking for better returns than they could get on deposit, while being able to borrow cheaply.
On the demand side:
- The increase in house prices relative to wages has meant that a big proportion of young people, mainly those without parental support (the bank of mum and dad), has meant that almost half of those aged 25-34 are renting privately, many with little sign of being able to buy in the near future.
- With people living longer and a higher divorce rate more housing in being taken up by single living, putting pressure on the quantity of available accommodation.
- Record levels of immigration mean that the tendency for most migrants to go for renting rather than buying places a further strain on supply.
- With a high house price to income ratio, saving for a deposit is made all the more difficult, pushing back the time, sometimes indefinitely, when some renters are able to buy.
The trends look inevitable and inexorable, as acknowledged in the White Paper, and indicate that in England, as in many other parts of the world, the long-term future of the property market will be for a greater proportion of people renting privately. Respected industry experts are predicting 25 to 30% share of the market for renting over the next five to ten years, while one expert has predicted a 50-50 split.
Given that the Government has now indicated a move away from a policy of higher levels of home ownership to one of renting provision, it is perhaps not surprising that it has confirmed its commitment to support ‘build to rent’; a move to encourage institutional investment in the sector though tax incentives and loan guarantees; pressing councils into grant planning permission more easily and quickly, and encouraging them to provide some rented accommodation themselves at private rent levels.
It is estimated that the average private renter spends on average of 35% of their income on housing, which compares to 18% on average for those with a mortgage. There is therefore a big incentive for people to buy their own property, but most find that saving for a deposit is the biggest hurdle.
With the growth of the PRS has come a substantial but minority cohort of rogue landlords who treat their tenants with contempt, abuse the system by providing often illegal, unsafe and sub-standard accommodation, and often while receiving taxpayer funded rent from benefit support.
The has led to a crackdown on all landlords in the form of increasing regulation, making it more difficult and more expensive for small landlords to operate, to the point, where, coupled with increasing taxation on buy-to-let, landlording is less profitable than it was.
Many are predicting a slowdown in private investment in the PRS, and with some landlords leaving the industry altogether, not only is this leading to an ever greater shortage of supply, it is raising private rent levels for tenants.
The next big challenge for the many private landlords who rent out older and less energy efficient housing is meeting the new standards to be introduced from April 2018. The report says that only 26% of privately rented property reaches bands A-C in energy efficiency, and PRS properties will have to meet a minimum of E before re-letting after April 2018.
Impact of the English Housing Survey https://t.co/jfoYzPmVnm
— LandlordZONE (@LandlordZONE) March 22, 2017