Due to a string of social demographic, political and economic factors in the early 1990’s, demand from tenants in the UK for private rented property started to rise quickly. This rapid change brought about the inception of ‘Buy to Let Mortgages’ which was introduced in 1996. After the introduction of Buy-to-Let , the first five years recorded a 49% increase in new landlords. These quick results were mainly down to the sector been fit for purpose whilst providing choice, value and flexibility for tenants. Since then more and more private landlords have entered the market creating stifled competition which in turn has increased the level of quality across homes in the sector.
Today in the UK, The Private Rental Sector (PRS) comprises of 5.0 million properties, which has seen this figure more than double over the last 20 years from 2.4 million. The re-birth of private renting over the last decade has been driven by a range of factors including the introduction of Buy-to-Let mortgages, relaxation of rent regulations, house prices rising more rapidly than household income and tighter mortgage lending criteria. As the sector is dominated by individual landlords who entered the market through Buy-to-Let, growth in private renting has come about mainly through transfer of dwellings from owner occupation rather than new construction. The Buy-to-Let market has played a pivotal role in the development of PRS over the last 20 years, enabling a market to diversify and meet the criteria of an ever changing demographic shaping The Private Rental Sector in the UK.
Migration into the UK has been a major influencer on PRS as the majority of migrants arriving here commonly live in private rented accommodation. According to the 2011 Census, more than half of the people who arrived in England and Wales between 2001 and 2011 were living in PRS. The overall majority of migrants entering the UK are seeking long term stay but a barrier of growing mortgage rates has left them with no option but to opt to live in PRS. Moreover, there are also visitors arriving into the UK particularly in London for 3-12 month stints. These type of visitors come to work, study or learn English so like Migrants living in the UK on a long term basis, they will also opt to live in PRS. London is increasingly attracting overseas visitors who wish to live in the city on a short term basis with the number of arrivals rising annually. The UK population is one of the fastest growing rates in Western Europe which is set to continue to rise with demographic trends also forecasting a demand for PRS. Furthermore, the expansion of the EU and its continued growth of member states is likely to see increased demand for Private rental accommodation from migrants.
Who lives in PRS?
- Single Parents
- Young Professionals
- Middle or lower income households
- People constantly moving jobs
- Senior Living
PRS is now the UK’s second largest housing tenure, over-taking social housing for the first time since the 1960s. An increased hurdle in the mortgage market has stifled growth in the PRS which has brought about an increasing desire for property with flexible tenure, especially among certain demographics who want to live close to amenities and where they work. As renting is no longer a last resort or a sector completely dominated by students and young professionals, it is now a tenure of choice as well as need. Tenants are living in PRS for longer – with the English Housing Survey showing that the proportion of those living in rented accommodation reporting that they have lived in their current home for between 2 and 4 years rising to 24%, up from 20% ten years ago. People are actively choosing to live in PRS as it provides greater flexibility, and better suits their lifestyle requirements.
It has largely been discussed between industry professionals that the growth of PRS is probably the most notable change in the UK housing market over the last decade. Between 2001 and 2011, The Private Rental Sector in England almost doubled in size as it grew from 8.8% to 15.4% of households. As barriers to home ownership remain high with significant affordability constraints, this is likely to continue to fuel demand for rented accommodation. Demand is high and supply is lagging behind which looks set to continue, as investors and developers look to catch up and meet the needs of PRS, a market now representing 19% of the English market.
The increasing entry of institutional investors into the market is a significant positive factor for PRS which should lead to an increase in the supply of good quality, well managed rental accommodation. Heavy investment has poured into the UK especially in London with a focus on the upper end market offering accommodation which gives tenants access to excellent locations & amenities. As PRS grows as an asset class, investment is forecasted to spread throughout the UK as investors will be attracted by an asset that is already income producing. The rapid rise of institutionally funded student housing is a prime example of what PRS can achieve if investors capitalize on the returns and developers can meet the high demand for stock. Savills reported that there was a record of 6.5 BN of institutional investment in student housing in 2015, as pension funds and investment banks in the UK looked to capitalize on the consistent returns on offer.
To conclude, it is evident that the introduction of Buy-to-Let Mortgages played a key role in the evolution of PRS. Industry professionals would say that it has certainly been the engine for it’s rise. As an atmosphere of excitement lurks around the sector, developers and investors are increasingly getting involved in PRS to take advantage of the possible rewards as key players look to capitalize financially. The attraction to such an investment is to create stifled competition among the big players in the sector along with new players who are looking for a piece of the cake. This in turn will benefit PRS residents as providers look to create higher and improved standards of management in the UK. Savills predicts that between 2014 and 2019 across England and Wales the number of households privately renting will increase by 1.2 million. This rapid growth has led the firm to forecast that on present trends, the sector will increase from 4.8 million households in GB to 5.5 million by 2020. As supply lags behind demand, it is evident that for the future it will be necessary for Investors and developers to both work carefully hand in hand if supply is to meet the demand of an ever growing UK population.