UK Property Market: More Rental Properties Needed

UK Housing Market

To meet demand, nearly a quarter of a million more rental properties are needed each year. The National Residential Landlords Association (NRLA) commissioned a study by international consultancy, Capital Economics, to ascertain how many rental properties are needed based on current projections of occupancy growth, and they concluded that 230,000 new rentals are needed each year.

Assuming the future growth predictions are correct, and if owner occupancy and social housing demand continue to grow at their current rates, there is a need for an additional 227,000 houses a year in the private rental sector. This projection coincides with nearly 2 million more households expected by the Government during the next decade.

Where will the required housing stock come from?

The mix of new-build, commercial property conversion for residential use, transferring housing stock from short-term to long-term residential lettings, and re-engaging unoccupied homes into the rental market would provide the amount of additional housing advised by the research consultancy.

According to the study findings, a lot more investment is needed by the private rented sector in order to meet expected demand: “Even with increased provision of affordable housing and higher rates of owner occupation, both of which are important, our research shows that significant additional investment is needed by landlords in the private rented sector.”

But is the private rental sector geared up for this challenge? Not really, according to the study. One reason is the way landlords’ profits are currently taxed, which needs overhauling to incentivise landlords to make the necessary investment. The regulatory system, too, needs changes, and without the necessary changes to tax and regulations, the private rented housing stock is set to shrink by about half a million properties—a 50% reduction—in the coming decade, noted the study.

This important study also noted:

“The private rented sector, which is predominantly supported by private individual investors, has a key role to play in addressing housing need in the UK. However, the stock of homes for private rent has fallen in recent years, driven partly by a series of policy changes”.

“Without further changes, that supply could fall by over half a million more over the next decade. Even with increased provision of affordable housing and higher rates of owner occupation, both of which are important, our research shows that significant additional investment is needed by landlords in the private rented sector.”

Increasing rents

Rental housing is in low supply, and as a result, prices are rising in tandem with the increase in demand. If new supply isn’t brought in, the problem will simply get worse as the number of renters continues to rise.

Indeed, UK renters can now expect to pay an average of £60 more per month, or £744 per year, then they would have done prior to the pandemic in 2020, with the average monthly rent nearly reaching a staggering £1,000 per month, and still climbing.

The writing on the wall is very clear: the Government needs to take action now in order to prevent the situation from getting much worse. The number of renters that fail to find affordable rental accommodation will only increase, exacerbating the problem. It’s hard to say much about the demand side of the equation, but the supply side, which is where we can take productive steps, is not adequately being addressed.

Indeed, as the study points out, “For all the efforts to support home ownership, the private rented sector has a vitally important role to play in helping the Government to achieve its housing objectives. Without urgent action, the increasing number of people looking for affordable housing will be the ones to struggle as they face less choice and higher rents as supply dries up.”

The Government has responded by saying that they recognise the vital contribution made to the UK housing crisis by the private rental sector. As noted by a representative from the Department for Levelling Up, Housing and Communities:

“We support the private rented sector and recognise the crucial role Build to Rent homes have in boosting housing supply and increasing quality and choice for renters across the country”.

“Our Build to Rent Fund provides over £630 million of development finance for the supply of new homes build specifically for private rent”.

“This Government is building more genuinely affordable homes to help people on to the housing ladder. Since 2010, we have delivered more than 574,000 affordable homes and we are investing £11.5 billion in affordable housing.”