The future outlook for the private rented sector (PRS)
The private rental market has come under significant policy changes which have affected many private landlords across the UK. Most notably, the increase in stamp duty land tax (SDLT) at 3% which has raised many questions as to whether the private rental sector (PRS) is still a viable investment proposition. In this article, I am to highlight the significant changes that has forced many landlords to reconsider their investment portfolios or forced them to leave the market completely.
Has recent policy changes had a negative impact on the growth of renting?
Since the recent introduction of the 3% SDLT charge in April 2016, landlords have sold 500,000 more homes than bought. This indicates that there has been an increasing number of landlors' who have decided to leave PRS as costs rise. As a result, landlords seem to be thinking twice about whether to add to their existing portfolio or replace the homes they've sold. Nevertheless, there has been no indication that the private rental sector has slowed down rental demand due to these changes. According to recent figures from countrywide; the number of households renting increased by 164,000 and is forecast to rise even further in 2018. This suggests that more people are entering the private rental sector as house prices rise and home ownership becomes less affordable. Consequently, the fall in the number of social housing available have left renters with paying higher rents which would allow landlords to offset some of the additional costs.
What is making up for the shortfall in the number of properties available in the PRS?
There are several ways for a home to enter the private rental market rather than being bought for that particular purpose. One of which are homes that were previously occupied by a landlord and has now become a second home. For example, couples who are both homeowners moving in together may decide to keep one property as their investment. Recent figures have estimated that in 2017, 80,000 homeowners trying to sell their homes decided to rent out their property instead. This suggests that there is an increasing number of 'accidental landlords' entering the private rental sectors (PRS). In addition, many landlords inherit their property from a relative, according to the Office of National Statistics (ONS) 200,000 estates were inherited in the 2014/15 financial year that included a residential building. However, this figure does that does not account for a large proportion of the rental stock, but significant proportion supported by funds from inheritance. Last but not least is the growth of the build-to-rent market. These are generally blocks of flats purposefully built to rent and are operated by professional organisations. This sector accounts for a small proportion of the rental stock but is believed to be growing with more than 100,000 units in the planning pipeline.
How has the housing wealth contributed to the PRS?
There is a colossal amount of wealth in the housing market. According to the ONS there will be £4.6 trillion of housing wealth, a third total household wealth. This means that more households will own their homes outright than own with the help of a mortgage. Hence, more landlords could be set to enter the private rental market with no mortgage on their existing portfolio. As a result, the mass of cash in the market alongside increasing institutional interest in the private renting sector is acting as an insulation to changes in policy and credit availability.
To conclude, the recent policy changes in the private rental sector such as the reduction in mortgage tax-relief and an increase in stamp duty has increased costs for landlords forcing some to review their portfolios or leave the market all together. However, the increasing the demand for rental property has shown no signs of slowing down in these current economic times.This has given opportunity to some home owners who would have never considered renting their property before to make a strong yields on their investment. Thus, support my belief that property is one of the surest and safest investments under the notion that the sector can continue to grow as the drivers of demand for rental property will continue.