An exercise in rental arithmetic

The private rental sector has gone through a period of rapid growth with agrowing proportion of the UK population now solely reliant on rental housing.

Since 1925, successive law reforms and government policies have encouraged home ownership as tenure of choice.

Moving through the post-war rebuilding period, many people moved from the private to social rental sector.

Government policies in 1960s, 1970s and 1980s encouraged home ownership through taxation and the Right to Buy programme.

The 1996 Housing Act was central to the reformed tenancy laws which have evolved creating a buy-to-let market as we know it today.

The shift from social to private renting has generally been positive. With the buy-to-let sector not just being utilised by would be first-time buyers, but also families and those looking for a more transient lifestyle.

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Unfortunately though,the increase in demand has been met with a shortfall in supply of rental properties.

Consequently, rent prices have risen rapidly over the last few years as demand is exceeding supply. A recent report by LSL Property Services shows that the average rent prices have reached a new record high of £734 a month in August 2012.

Increased regulation of tenancies, such as licensing, gas and electrical safety certification and tenant deposit protection schemes, have all added pressure on landlords to improve their product offering and has resulted in higher standards overall.

Future regulatory changes, such as the potential regulation of buy-to-let mortgages has the possibility to impact individual landlords’ ability to enter the market in the longer term.

The recent publication of the long awaited report by Sir Adrian Montague into the private rental sector looks closely at the issue of supply.

Sir Adrian’s report makes a series of recommendations aimed at boosting professional investment in good quality, privately rented homes in an attemptto help meet the nation’s housing demand. It also addresses the issue of reducing excessive regulation that have led to increase in demand, but kept supply a low and at a premium, forcing up rent prices and reducing choice for tenants.

Sir Adrian’s report makes a series of recommendations to speed up the timescale for building the private-rented homes needed to meet existing and growing demand. The report looks at a number of measures at boosting investment in properties solely for renting and unblocking some of the barriers that stop build to rent developments getting off the ground.As we begin to see more supply, this will lead to lower rent prices creating a stable market, particularly in rental hotspots such as London and the South East – positive for the overall housing industry.

The former housing minister Grant Shapps – he has recently been replaced by Mark Prisk in the latest Government reshuffle – at the time welcomed the report. Shapps stated that it offered, “a blueprint” for encouraging more institutional investment into the sector. What the report does not do is provide details of how this could be implemented. Questions remain on how we do this and what impact this will have on the sector as the role of the landlords is integral to the long term success of the sector.

The fact that UK housing has been reinvigorated as an important topic of discussion is great to see, but the government needs to maintain momentum. It should still focus on helping the average landlord who has ultimately propped up the rental market over the last few years.

While affordability and mortgage availability issues have resigned many to view the rental market as a more viable option than homeownership, many younger people – typically first-time buyers – are also opting to rent because of the flexibility it provides. Renters are able to move home very quickly and are not tied to one area by the need to sell a house before moving.

As a result, small scale buy-to let investors will continue to play an integral part going forward.

Article courtesy of Mortgage Strategy

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