The private rented sector gets a bad press, but it’s time to shine a little light into the darkness
The private rented sector gets a bad press. All you seem to read about is proposed rent controls, innocent tenant families forced to live in undersized hovels and HMRC threats regarding tax crackdowns. This presents an image that aligns the private rented sector with all the legitimacy of drug dealing.
So let’s shine a little light into the darkness. Private rentals account for the greatest increase in the supply of housing over the past 15 years in the UK. In 1999 the sector accounted for 9.9% of households but this has now almost doubled to 17%. The days of Peter Rachman and the slumlord are not entirely things of the past but they are nowhere as prevalent in 2014 as they were in 1960.
You are as likely to find a retired schoolteacher buying a small flat in Northampton with the aim of gaining additional income through rent, as you are to see a professional landlord at a property auction. With interest rates at subterranean levels, a rental property is becoming the new pension option for many. Hence it is a growth industry and a great example of UK entrepreneurship. Surely this is something to be congratulated rather than castigated.
Since 2004 originally strong rental growth in mainstream housing across the UK has tended to be limited to the capital and a select group of regional centres like Oxford, Cambridge, Bath and Bristol where demand consistently outstrips supply. The boom then came in areas where there is high employment or where an influx of industry has not been supported by a complementary growth in housing provision.
In a way I find myself torn between a desire to congratulate the spirit of those who want to invest in property, weighed against the fact that it can be argued that the boom in availability of the rental sector is distorting an already dysfunctional housing market
For the SME contractor a growth in regulatory governance over landlords has been a godsend. During the dark days of 2008-11 the private rented sector provided a lot of work as properties had to be refurbished, conversions undertaken and new Eco-rules enacted before licenses could be obtained by landlords. This quantity of work should not be underrated. With over 3.8 million rental homes out of a total of 22 million households in the UK, rental income adds up to £33bn a year. A good deal of that went into the pockets of local building contractors who were frankly desperate for the work.
In a way I find myself torn between a desire to congratulate the spirit of those who want to invest in property and take the risk of incurring void rental periods, leaky roofs and awkward tenants, weighed against the fact that it can be argued that the boom in availability of the rental sector is distorting an already dysfunctional housing market. Kids no longer aspire to own, they know they will never be able to afford to, so they become Generation Rent. This brings flexibility and a transient workforce who do not feel shackled by the need to support a long term mortgage. Why buy when you can fly. This is not necessarily good news for employers who want to keep hold of a long-term stable workforce.
However a great deal of Central European countries have a rental model which functions and works well and they have higher productivity levels than the UK. Also no-one really knows what the right balance is between owner occupied, private rented and social housing. It is interesting to note that owner occupation has dropped from 70.5% in 2000 to 65% now. Is it really fair to blame our schoolteacher in Northampton for investing in what she sees as a substitute pension for a decline in those wanting to own and a growth in the rental sector?
One thing is certain - wth an estimated 300,000 new houses needed every year for the next seven years to just keep up with current population levels, the buy-to-let market is not going to disappear - and frankly God help us if it did. So let’s not be so quick to criticise the landlord and let’s get some sanity and balance.
Richard Steer is chairman of Gleeds Worldwide.