Private rents to keep growing

PUBLISHED : Wednesday, 29 February, 2012, 12:00am
UPDATED : Wednesday, 29 February, 2012, 12:00am


Britain's private rental sector has expanded to levels not seen since the 1960s, government figures show.

Demand for privately-rented accommodation is likely to grow further, experts say, while political pressure is increasing for landlords to be taxed more heavily and regulated more tightly.

According to the English Housing Survey 2010-11, published by the Department of Communities and Local Government this month, 16.5 per cent of households in England lived in privately-rented homes last year, 17.5 per cent in social housing and 66 per cent in owner-occupied homes.

There were 3.6 million privately-rented households in 2011, the highest figure on record since 1961. Of the 394,000 new households formed in England in 2011 two-thirds were private renters.

The move to private renting has accelerated as home ownership becomes increasingly tough, according to Lucian Cook, research director at Savills Residential Research.

'That reflects the increased deposits required by would-be first-time buyers, as mortgage finance at high loan-to-value ratios has all but dried up. For example, in London the average deposit for a first time buyer now stands at GBP58,000.'

A shortage of home loans and tighter mortgage regulation mean the private rental sector will expand to 20 per cent of the housing market nationally by 2015 Cook forecast.

Guy Meacock, associate director at buyers agency Prime Purchase, expects the proportion of people renting privately in London to rise from a quarter of all households to a half, partly because of the city's growing number of foreign residents, many of whom come from countries where home-ownership is rare.

Liam Bailey, head of research at Knight Frank, said the expansion of the private rental sector provided opportunities and challenges for Hong Kong investors.

'There will be more tenants, which is a positive. But there will also be more competition from landlords, making stock selection ever more critical for investors,' he said.

Meacock advised investors not to focus purely on newly-built homes. 'British and Europeans tend to lean towards second-hand, period property, which is often better located and has infinitely more character.

'They can be more expensive to run and insure, but the potential for capital growth will be higher.'

Houses make better investments than flats, because they grow in value faster, attract more long-term tenants, and have lower running costs Meacock added.

But while an expansion in demand for private rental accommodation and the weakness of the pound makes Britain attractive for Hong Kong property investors, they should be forewarned that it is an increasingly politicised market.

The Liberal Democrat candidate for the office of mayor of London, Brian Paddick, has accused investors of driving up property prices; and the Labour Party wants to hold talks with his party, who form part of the coalition government, on regulating the private rental sector more tightly to root out 'rogue' landlords who provide poor quality accommodation.

First-time buyers campaign group Priced Out claims property investors have outbid one million first-time buyers in the housing sales market over the past 10 years. The organisation wants foreign investors taxed more heavily.

'Most other rich countries with 'open' economies have much tougher investment rules,' said Priced Out spokesperson Katy John. 'We think we should go down this route and make the UK less of a free ride.'

But Knight Frank's Bailey said politicians were in a dilemma about whether to take action against landlords. 'The reality is the private rented sector ... is the only sector that has the flexibility to react to vast growth in London's population.'


The likely increase in rents in London this year, according to Hampton International