As Demand Continues to Outstrip Supply, Rental Prices Could Skyrocket
According to the latest report from the Royal Institution of Chartered Surveyors (RICS), the number of active renters searching for properties continues to outstrip supply. With a predicted 15% increase in rental prices by 2023, RICS detail that rental supply has seen a consistent fall for nearly two years, even with the increase in demand for rental properties.
Last year saw changes to mortgage tax reliefs for landlords which, by 2020 will be restricted massively, impacting small-scale landlords heavily.
RICS Policy Manager, Abdul Choudhry casts his opinion:
“Withdrawing tax breaks that small landlords relied on, placing an extra 3% on second home stamp duty, and failing to stimulate the corporate build-to-rent market, has understandably had an impact on supply.
“Ultimately, the government must consider the impact of its policies, and if the wish is to move away from the private rented sector, it must provide a suitable alternative.”
The survey goes on to mention that the South West of England, especially in areas such as Exeter, will see the highest increase in rents. Other regions experiencing ‘mini-booms’ are Edinburgh, Birmingham and commuter belt towns.
Birmingham is a particularly interesting example; rental supply is down and there are presently 5% fewer homes to let than there were two years previously, according to the Countrywide rental index.
The change began in April 2016 when a stamp duty surcharge for additional properties was introduced. Although rental supply has continued to be strong in the North of England, the South has seen a decrease in supply, with the North seeing 19% more properties available to rent than 3 years ago, whereas the South saw a 16% decrease in available rental properties.
This decrease in available properties to rent in the South may, in part be due to the result of longer tenancies as more and more tenants decide to settle down and take advantage of their locality.
Manchester and Birmingham are still seeing rental under supply as demand escalates rapidly.
Birmingham is to expect a population rise of 171,000 to a total 1.3 million people by 2039 while experts predict that the city will need a further 100,000 homes over the next two decades.
As cities such as Birmingham see their infrastructure improve and large commercial investment in the city, this equates to a large number of tenants scoping out rental opportunities to take advantage of.
Another factor that is increasing tenant demand in the area is the arrival of HS2, the high-speed railway connecting areas such as the West Midlands to the capital in a fraction of previous journey times. What is now a one hour and 21-minute journey, once the HS2 is introduced, will be slashed to 49 minutes, making it a viable commute. This gives tenants the attractive option of the high salaries enjoyed in the South, coupled with the affordable rent of the Midlands.
The number of empty homes in the UK is also contributing to rental increase. Standing at an estimated property value of £50bn, empty properties make up a large proportion of the UK’s property market, with the number rising for the first time in 10 years.
The number of empty homes in the UK now stands at around 205,293, an increase of 2.6% compared to the previous year, according to a report by HouseSimple.
Locations include London with 20,237 empty properties, Birmingham with 4,280, Bradford comes in at 3,931 and Liverpool has 3,889 vacant homes.
There may be no particular reason for this trend, although the aptly named ‘buy-to-leave’ landlords are considered to be an influential element. It goes like this: a landlord buys a property, leaving it vacant while waiting for the value to go up before selling. Local councils are taking steps to curb these cases by levying higher rates of council tax on properties that sit empty for extended periods of time.
Government plans to ease rules of making use of existing land that already has property on it, for example converting empty shops into flats should help relieve the issue with an aim of making better use of brownfield sites and building upwards instead of outwards. New planning rules are making this easier to happen, affording minimum densities around transport hubs and city centres so that a greater number of properties can be developed in places with the highest demand.
Kent Reliance, the private banking company, forecast that the rental market will carry on to professionalise as it connects the supply gap, developing the service between landlords and tenants as less experienced landlords exit the market.
To date, 31% of landlords now make a full-time living from investing in properties, compared to three years ago when the figure was 26%.
With a greater number of landlords now functioning as a business, purchasing properties as a limited company, there is greater opportunity for them to offset their mortgage interest costs against tax.
The data from Kent Reliance demonstrates that 72% of mortgage applications came from a limited company, more than twice the rate seen a couple of years ago.
Andy Golding, CEO of Kent Reliance states:
“A housing market with dwindling supply of rental accommodation yet growing demand would, without a significant rise in affordable housing, provide the worst of all worlds for tenants: higher rents, with less choice and security, hampering their ability to save to buy a home.”
A 15% rise in rents for tenants is pushing forward essential economic growth in areas across the UK plus a boost in regeneration to establish more desirable locations. With rising rental yields and steady capital growth, the market is in a strong position.
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