Is the private rented sector shrinking?
The plight of Generation Rent fills many column inches in both newspapers and political policy documents. Growing numbers of households cannot buy and find themselves in rented accommodation for much longer than they had hoped.
However, a research report jointly produced by the BBC and the estate agency trade body Propertymark found that the private rented sector appeared to be shrinking rather than growing.
But how can the private rented sector be shrinking at the same time as generation rent is growing?
The BBC / Propertymark survey found that the number of landlords leaving the private rented sector had increased over the last three years, and the number of new landlords entering the private rented sector over the same period had decreased.
The survey also found that the average number of properties available for rent per branch (across more than 4,000 branches) had halved between March 2019 and March 2022 from 30.4 to 15.6
Between 2019 and 2021 estate agents reported that the number of buy-to-let properties bought and sold was similar. However, in March 2022, the average number sold per branch was 9.6 while the number purchased by investors was only 4.5, suggesting that the owner-occupier sector had started to grow whilst the private rented sector started to shrink.
What does this all mean?
The survey results were derived from 443 responses covering more than 4,000 branches across the UK, about 20% of the sector, so a decent sample size.
But, the private rented sector cannot be shrinking if 'generation-rent' is growing, so what is going on here?
What we do know is that housing affordability is a growing problem, hence the growth in generation rent.
We also know that high house price inflation (particularly during the pandemic) coupled with increased private rented sector regulation is leading some landlords to sell some or all of their buy to let properties.
Where those properties are being sold to other landlords, the private rented stock remains unchanged, but when they are sold to owner-occupiers the private rented stock reduces.
If landlords are selling to owner-occupiers then affordability is not an issue for all homebuyers.
Rental stock leaving the market could also be a function of stock shortages in general, i.e. if there were more homes for sale (statistically) more of these would likely be homes already in the owner-occupied sector and there would be less competition for rental properties.
There are also likely to be wide regional variations in the data reflecting different patterns of house prices and rental yields across the country and generation rent is likely to be over-indexed in areas with relatively high house prices such as London and the South East.
Could a carrot and stick solve the problem?
When a landlord sells a property they will be liable for any capital gains tax over and above their annual allowance. Perhaps landlords could be offered a tax incentive to sell to first time buyers at a discount to open market value, where the tax incentive is structured to more than offset the discounted selling price.
This would help aspiring first-time buyers, and not disadvantage landlords looking to sell whilst helping the Government fulfil their policy objective of increasing homeownership.
Carrots are more palatable than sticks, but more sticks are on the way, requiring landlords to improve their properties' EPC ratings to C or better may lead to more stock coming on the market if the changes required cost more than the benefits of doing so.
These sticks are likely to lead to a reduction in prices of less energy-efficient properties, which could help those aspiring first-time buyers currently priced out of the market.
There are no easy answers when you have a group of 'haves' and a group of 'have nots', some would alchemy is required to distribute wealth between them in a way that works for all. We don't think alchemy works, but we believe that fractional ownership is the best solution to the housing problem.