The UK’s private rented sector (PRS) will need at least £1.4 trillion of new investment to meet rental housing demand by 2035, that’s according to a forecast based on research by mortgage lender Landbay, reported by mortgagefinancegazette.com, and that’s even if house prices remain the same as they are today.
Founded by John Goodall and Gray Stern, Landbay is a peer-to-peer lending company.
Landbay’s projections are based on the assumption that the rental market will grow at the same rate it has done since 1991, that is 4.4 per cent, while house prices will remain broadly static.
In reality, they say, housing stock and population pressures could see even higher growth rates in years to come.
However, says Landbay, if house prices continue to grow at the same average rate as since 1990, which is 5.1 per cent a year, the sector would require investment of £4 trillion over the next 20 years.
On Landbay’s projections the private rented sector is set to more than double in size by 2035, from 4.9 million properties in 2012 to 13.2 million properties. If these projections turn out to be accurate, this would mean a renatl sector which is approaching forty per cent of all households.
Of the total figure Landbay predict that London and the South East will account for a significant share of total cumulative investment needed at around £455 billion by 2035.
This predicted PRS investment needed in London and the South East compares to a similar large sum needed for total infrastructure for London, recently estimated by the Greater London Authority to be around £1.3 trillion by 2050.
The rationale behind the predicted growth of the PRS according to Landbay:
– The UK’s population is growing and projected to increase by 9.6 million people to reach 73.3 million in 2037.
– Growing life expectancy is set to put a strain on public services and housing demands. ONS figures suggest that by 2037, life expectancy at birth is projected to reach 84.1 years for males and 87.3 years for females, increasing by five years since 2012.
– 240,000 new homes need to be built each year to meet demand; however supply is far below that, pushing house prices up significantly. For example, in 2010 fewer houses were built than in any other year since the Second World War.
John Goodall, co-founder and CEO of Landbay, told mortgagefinancegazette.com:
“A substantial amount of new investment is needed to provide homes that will be needed over the next two decades, particularly if those homes are to be high quality homes that people want to live in.
“The UK’s housing stock is under significant pressure because not enough new houses are being built, the population is growing and people increasingly prefer to live in smaller, high quality dwellings.
“The scale of the investment needed to ensure the sufficient supply of high quality properties means that multiple solutions are needed – from build-to-let by pension funds, the government’s own ‘Build to Rent’ scheme, further housing debt guarantees from the UK government, through to continued investment by private landlords themselves and an active and vocal private rented sector taskforce.
“We are gradually moving towards a more European model of housing – where home ownership sits comfortably alongside an equally aspirational population of tenants. In countries such as Germany, where more than half the population live in private rented accommodation, this has been entirely consistent with improving living standards.
“So long as the UK can find the necessary investment and the most appropriate reforms, a growing private rental sector has many benefits. Renting offers insurance against house price corrections and greater flexibility and mobility in an evolving jobs market.”
Table: Cumulative investment required in the PRS at different levels of annual house price growth
The UK’s PRS will need at least £1.4 Trillion of New Investment to meet Rental Housing Demand by 2035 – http://t.co/QmdSfkxGUz
— LandlordZONE (@LandlordZONE) March 3, 2015