industry news
One million more private rented homes are needed
to promote homeownership, according to property consultancy Savills. The government has a target of building
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400,000 new affordable homes for sale over the course of this parliament, but the Savills report says Britain still requires an additional 220,000 homes for rent a year. Key points from the report, called Rental
Britain include: • The rental market will expand by more than one million households over the next five years despite measures to turn “generation rent into generation buy”;
• The supply of rental homes is set to be constrained by the introduction of a Stamp Duty surcharge of 3 per cent on buy-to-let properties and the restriction on tax relief on mortgage interest payments. Both measures are likely to limit the ability of private investors to expand their portfolios. This presents a major opportunity for large-scale investors to step into the gap created by a fall in off-plan sales to buy-to-let investors;
• A mismatch between supply and demand will continue to underpin rental growth and attract increasing numbers of institutional investors. (Savills recorded investment deals worth a total of £2.6 billion in 2015 – a third of which was supported by institutional investment);
• The lack of available stock is prompting an increase in deals to forward fund development for rent; and
• Investors are looking beyond London to cities with concentrations of households in the rental market. This highlights the cities of Manchester, Reading, Edinburgh and Bristol as having the best investment potential.
emand for rented homes will rise by more than one million households over the next five years despite government measures
Demand growth
Changes in Government policy is expected to curb some of the demand for rented homes, but demand is such that researchers at Savills forecast that the sector will grow by 1.1 million households by 2021, even assuming the 400,000 homes for sale target is reached, the firm says in Rental Britain. The economic recovery and ongoing low interest
rates have failed to reverse the growing demand for rented housing. Instead, house price inflation has run ahead of wage growth and this has pushed homeownership further out of reach for many. This has coincided with the social rented sector shrinking by 2.8 per cent in the past five years, pushing more households into private renting. According to the English Housing Survey, private
renting has been growing by 17,500 households per month on average over the 10 years to 2014. Government housing policy, including its focus on Starter Homes, a greater number of Shared Ownership homes and access to larger equity loans through Help to Buy London, is seeking to reverse this trend by helping people access the property ladder. “But demand for rented homes could still rise
more sharply than we have forecast,” says Susan Emmett, director, Savills residential research.
Questionable target
“We would question whether policies can accelerate housebuilding enough to see the government’s target of 400,000 affordable homes for sale reached in the timescale set. Given the overlap between the different schemes, each focused at similar parts of the market, it is possible that one scheme could simply replace the other
rather than providing additional homes. “This analysis demonstrates that we still need to
provide a substantial number of homes for rent. government policy should focus on supporting the development of new homes to rent as well as to buy.” Instead, as the need for rented homes grows, so
recent policy announcements are set to constrain the supply of rental homes. The introduction of a stamp duty surcharge of 3 per cent on buy-to-let properties and the restriction on tax relief on mortgage interest payments are likely to limit the ability of private investors to expand their portfolios. This presents a major opportunity for large scale
institutional investors to step into the gap, with expectations that they will remain exempt from the tax changes and become increasingly attractive sources of bulk finance for developers.
High price of waiting to buy is revealed T
he high costs of renting a home while saving for a deposit have been revealed in research, which also shows that many
would-be buyers are giving up on the idea of ever owning their own home. Figures from the Association of Residential
Letting Agents (ARLA) show that UK tenants spent an average of 22 per cent of their wages on rent last year, and that first time buyers getting on
the housing ladder this year will have previously paid out an average of £52,900 to landlords. The ARLA research, which is based on someone
moving out of their family home at the age of 18 and renting for 13 years, shows that in North-East England a typical tenant will have spent £31,300 on rent before they can buy, while in London the figure is over double that at £68,300. The figures, which were compiled with the
“Figures from the Association of Residential Letting Agents (ARLA) show that UK tenants spent an average of 22 per cent of their wages on rent last year and that first time buyers getting on the housing ladder this year will have previously paid out an average of £52,900 to landlords”
Centre for Economics and Business Research, suggest that someone moving into rented accommodation in London this year will spend an average of £91,500 on rent before buying their first home. Meanwhile a fifth of those renting now have told
ARLA they never expect to be able to afford to buy a home. This coincides with research from accountants
Pricewaterhouse Coopers (PwC) which predicts the proportion of people owning their own home in London is likely to decrease from 58.7 per cent in 2000 to 39.5 per cent in 2025. During the same timescale, the number of
private sector tenants is set to increase from just 15.2 per cent sixteen years ago to a massive 39.5 per cent at the end of the period, with about 20 per cent renting from social landlords.
www.housingmmonline.co.uk | HMM March 2016 | 9
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