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Why is the UK private rental sector set to dominate by 2025?

Investment in the UK’s private rental sector (PRS) will soar to £75 Billion by 2025, with an additional 560,000 households expected to be in private rented accommodation by 2023, according to the latest tenant survey report by Knight Frank. 

With changes to buy-to-let taxes, a significant decline in buy-to-let mortgages and the fight for young families or first-time buyers to get onto the property ladder, the significant growth of the PRS comes as no real surprise. 

Although this growth has resulted from several contributing factors. I believe that the following issues will be key over the next three to five years: 

PRS and the national housing crisis

The UK is amidst a real housing crisis, falling short by the millions. If the government refrains from implementing further taxation and legislation, the growth of the PRS has the capability to help fulfil this shortfall on a mass scale, providing tenants with the opportunity to live in locations where they otherwise wouldn’t be able to afford to purchase a property.

Developers, like Godwin, understand this shortfall and as a result are working hard to liaise with councils and builders to create Build to Rent developments that are suited to varied demographics; ranging from high-rise city centre apartments for professionals through to family housing rental units in desired wider city and rural locations.

The rental demographic has shifted

The Knight Frank report has unveiled an interesting demographic shift for the PRS, where young professionals, aged 25 – 34, are no longer the most prevalent group. 

Instead, those aged 35 – 49 are now dominating this space, and although within the middle-aged bracket, those at the higher end are less likely to receive the best mortgage rates and are, therefore, more likely to remain in private rented accommodation for years to come, fuelling the sector’s continued growth. 

This is confirmed by the fact 69% of tenants who participated in the Knight Frank survey expect to still be living in rented accommodation after three years, rising to 93% for baby boomers [aged 65+]. 

Investment hotspots are changing

Currently, investment in London’s PRS outweighs the rest of the UK, but over the next five years this will change, with growth predicted for key locations Birmingham, Bristol, Manchester, Leeds, Cardiff and Edinburgh. 

Why? There is an increased demand for property outside of London, where key UK cities have received investment and experienced economic growth as a result, with Birmingham representing an excellent example of regeneration. 

The pending HS2 line will also drive increased property demand and development, enabling commuters and professionals to travel between core cities at ease and with speed.  

Private rental schemes, therefore, will enable tenants to live comfortably in these high-demand vibrant city locations, without concern over the cost of purchasing a property, in turn contributing to the continued growth of the sector.

*James Mulcare is the Land Director for Godwin Group, a UK Focused Regional Property Development and Investment Company.

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