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Life-long renters could face a shortage of homes

The housing market is not set up for the increasing number of life-long renters, a property management company has claimed.

DJ Alexander, one of the UK’s largest family-run management firms, carried out a study which suggests that new-builds increasing at a slow or falling rate, the private rented sector remaining static following regulatory and financial changes, and social housing failing to increase to meet changing demand is all helping to leave the market ill-equipped for those eager to rent for the long-term.

The research suggests that many buy-to-let landlords are considering leaving the property market thanks to recent government changes to the financing and regulation of the sector. If this were to happen, and the private rented market was to shrink while social housing growth remains relatively flat, DJ Alexander said there is a risk that life-long renters could find their options limited by a shortage of housing stock.

The latest statistics reveal that there were 19.45% fewer new buy-to-let mortgages (5,400) taken out in June compared to the same month last year, alongside an 11.1% decline in value to £0.8 billion.

Even as recently as July 2015, there were 11,800 new buy-to-let mortgages being granted per month with a value of £1.6 billion. This reached its peak in March 2016, the month before changes to stamp duty started to hit the market. (The extra 3% surcharge on buy-to-let homes came into force in April 2016). In that March, 29,300 new buy-to-let mortgages were taken out with a value of £4.4 billion. 

“The BTL market has become much tougher in recent years with changes to affordability, access to finance, and a reduction in the tax benefits of property investment,” David Alexander, managing director of DJ Alexander, said.

He believes that all of this has led to a softening of the market and many landlords either leaving or contemplating leaving the marketplace. “The result is potentially a fall in the number of private rental properties available although this will be different across the UK with some rental markets stronger than others,” he continued. “Therefore, many life-long renters, of whom there are a growing number in their thirties and forties, may find their choice limited by a smaller marketplace.”

Over the last eleven years owner occupiers in the 35-44 age group have dropped dramatically from 71.6% to 52.4%, while private renters have risen from 11.4% to 28.5% in the same period. Social renters in this age range have increased slightly over the same period from 17.0% to 19.1%.

Inevitably, as the number of people with mortgages has fallen, the number of people entering the private rented sector has risen – with the majority priced out of owning a home opting to rent instead. The worry is, if the sector should diminish considerably in the next few years as struggling landlords leave the market, there will be too little supply for rapidly growing demand.

The number of people with a mortgaged property in London fell from 39.2% to 22.4% between 2005-06 and 2016-17. During the same time period, numbers in the private rented sector have risen from 16.5% to 30.0%.

The amount of people in mortgaged property outside of the capital has also fallen from 41.4% to 29.5% in the last 11 years, while private renters have nearly doubled from 9.5% to 18.6%.

“With a growing number of life-long renters emerging there is going to be an increasing need for more social housing, more private renting, and more affordable homes across the country,” David Alexander continued. “The government and local authorities need to work together with the private sector to ensure that we have a sufficient housing stock to serve the changing needs of the UK population.”

He said this means the freeing up of more land in areas where demand is high for property development, as well as a steady and continuing building programme of social housing, the encouragement of the private sector to build more homes in areas of greatest need, ‘and the encouragement of a strong and vibrant private rented sector’.

In the year to March 2018, new build starts totalled 157,480, a decline of 3% when compared with the year to March 2017. Equally, private enterprise new build dwelling starts (seasonally adjusted) in the March quarter 2018 were down by 3%. Similarly, starts by housing associations were 14% lower compared to the last quarter.

While all starts are now 109% greater than the March quarter 2009 (at the height of the global financial crisis), they are still 14% below the March quarter 2007 peak.

“What this tells us is that newbuild have improved but are, of course, subject to market fluctuations and we need a combination of differing property solutions to meet property needs from the private to the social sectors, from renting to purchasing,” Alexander said.

“Of course, one person’s difficult market is another’s opportunity, so I do believe that we will see a change in the make-up of the marketplace with many of the ‘accidental’ landlords (those who got into the property market through inheritance or difficulty in selling their home) now withdrawing from the market and a new breed of entrepreneurial, organised, and well-funded landlords emerging.”

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