Knight Frank’s 2017 private tenancy survey says that the proportion of households living in the Private Rented Sector (PRS) has doubled in the last 10 years or so, and this is expected to continue to grow – Knight Franks predicts that by the end of 2021 nearly one in four households will be living in the PRS.
Increasing property prices and low wage growth mean than home ownership is falling in the UK. Generation Rent, the up-and-coming generation are finding it increasingly tough to buy without help from “the bank of mum and day”, forcing more and more into renting long-term.
A YouGov survey conducted for Knight Frank finds that of more than 10,000 tenants and 26 major investors, at least three-quarters of UK renters are now living in homes owned by small-scale private landlords, but in future they will increasingly rent from large-scale institutional landlords – the Tesco-isation of the rental market, a policy now being encouraged by government policy, to quickly build large-scale rental accommodation, is taking place.
It is estimated that the number of households renting privately in the UK will increase to around 5.79 million, or 24% of the total, over the next five years, up from about 21% today, with currently around 14.3 million owner occupiers and 4.3 million social tenants, says the report.
The report identifies two main factors accounting for the growth of the PRS: young workers taking advantage of the increased flexibility of renting as a tenure, allowing them to move between locations without any of the costs associated with buying or selling a property, and affordability constraints in the sales market, curtailing any plans for house purchase, resulting in a longer stay in the PRS as workers save for a deposit.
Another factor to be considered is the changing shape of the sector, with the growth of large scale investment, small at this point but growing steadily with Build-to-Rent or Multi-housing investment now taking place – professionally managed rental accommodation, usually at scale, in purpose-built blocks, mainly in large cities. It is estimated this market is now worth £25 billion and Knight Frank estimates that the sector will be worth £70bn by 2022.
The report throws into sharp focus the recent government policy changes – additional stamp duty on buy-to-let investments and the curbing of mortgage interest reliefs – and the impact they are having on small-scale buy-to-let landlords, who currently own the bulk (around 75%) of privately rented stock.
By discouraging buy-to-let landlords government is creating more opportunity for large-scale operators. The recent Housing White Paper confirms this, showing more government support for the role that professional institutional landlords can play in the rental sector in the years to come. Early indications are that the Multi-housing sector is responding to these government initiatives with some of the larger players saying they will offer longer term tenancies for those tenants that want them.
The rental market is made up of mainly young professionals aged between 25 and 34, with renting families and 50- to 64-year-old singles and couples, as well as retired people over 65, and in some cases in the bigger cities, with these people spending over half their incomes on rent. The report estimates that 40% of renters now pay more than 50% of their incomes on rent.
All of 68% of tenants expect to be still renting in three years’ time, with 30% of survey respondents saying that the most common reason for renting was to save for a deposit to buy a property, 21% said renting allowed them to live in an area they could not otherwise afford to live in, while 18% thought that renting was more affordable than paying a mortgage.
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