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Creating a PRS fit for the future 

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By acknowledging the important place of the private rented sector in the UK’s housing provision, we can work towards ensuring that it meets the varied needs of tenants today and in future. Our Mortgages Managing Director, Richard Rowntree, shares his thoughts.

The private rented sector (PRS) has grown substantially since the turn of the millennium and in more recent years we have seen strong demand for rented homes driven by a range of factors.

While it remains to be seen whether this demand will translate to further growth of the sector, history shows us that many people will willingly call the PRS home at some point.

We commissioned the Social Market Foundation (SMF) to produce a report looking at the future of the PRS, including projections for the trajectory of the sector to the year 2035.

The modelling was based on historical English Housing Survey data and looks at three scenarios – high, medium and low home ownership - providing outcomes for the proportions of both the socially and privately rented tenures, as well as for home ownership. The projections place the PRS as accounting for 16% of households in the high ownership model, 22% in the mid ownership model and 30% where home ownership is low.

When we consider that today’s PRS accounts for around 20% of households, approximately 4.5million, we can see how even in a high home ownership scenario, there will still be a sizable population of tenants. 

Knowing this, it is important that we understand how the PRS of the future meets the needs of these tenants.

As part of the SMF’s report, almost 1400 tenants were asked what they look for in a home currently and what they expect to consider important in their future home. 

Monthly rental cost is among the top three current priorities for over half, 55%, of renters. Looking forward, a lower proportion, 45%, of renters anticipate budget being a priority but it still remains top.

The property size, indicated by number of bedrooms, was recorded as the second top priority for renters both now and in future.

Key future priorities also include outdoor space and permission for pets. This highlights that, alongside the more practical considerations of budget and size, tenants also look at how their home will fit their lifestyle.

I feel that this should be seen as a positive by the industry because it is an example of how landlords have the power to make decisions that will improve the service they offer customers.

Unfortunately, with so many factors influencing the housing market, ensuring that privately rented homes of the future are affordable is not such a simple issue and no one obvious solution exists. What is clear, however, is that the implications of regulation and tax on the sector should be part of the discussion.

NRLA-commissioned research by Capital Economics found that 540,000 fewer properties could exist within the PRS in the next 10 years as tax burdens lead landlords to exit the sector.

Simple supply and demand dynamics dictate that reduced supply would place upward pressure on rents that are already rising due to increased overheads as properties become more expensive to maintain and power. In addition, landlords face financing costly retrofitting to ensure properties meet proposed EPC requirements.

Rising inflation will impact us all and it is likely that some first-time buyers will be forced to put their home buying aspirations on hold, adding further demand for rented homes. 

Ultimately, supply must increase to ensure that people across all tenures have access to good quality, affordable homes.

Build-to-rent (BTR) has been seen as a solution but despite encouraging growth in recent years, the sector is a long way off having capacity to make significant contributions to the UK’s supply of homes.

In addition, we see that the current BTR offering doesn’t always meet the needs of all tenant groups. While being centrally located and boasting facilities such as on-site gyms and roof terraces may mean that developments appeal to cohorts like young professionals, they may less suitable for families with children, the largest tenant group.

Despite this, the emergence of the sector does highlight a shift in attitudes to rented property, with developers recognising that while some will rely on the privately rented homes because they cannot afford to buy, many others will consciously choose to rent, enjoying benefits like lower maintenance responsibilities and increased mobility.

Either way, the PRS will continue to be crucial in meeting UK housing demand for many years to come. Privately rented property must be viewed equally alongside that of other tenures and acknowledged as an accommodation option that suits many people for many different reasons.

The industry can play an active part in making this happen, working together and with policymakers to deliver homes that meet the needs of tenants now and in future.

Richard Rowntree

Richard Rowntree
Managing Director for Mortgages

This article was first published in Mortgage Introducer.