According to a recent report by Home.co.uk, the UK property market has seen a worryingly sharp decline in rental homes available over the past 6 years.
Available rental home stocks have dropped on average by 11.6% since 2011, with Scotland seeing the most drastic drop of nearly 38%.
Looking over the same time period, Wales and the South West saw the next biggest decline in rental homes, while 5 other regions also fell harder the UK average. This includes a decline of 24.6% in the East Midlands, a drop of 20.8% in the South East and a fall of 16.7% in the West Midlands.
The only region that didn’t see a decline in rental homes was the North West, that saw a rise in supply by 33.4%. This particular region has seen a decrease in average property values, leaving many home owners unable to sell without making a loss, which in turn, resulted in a rise of rental properties as vendors resorted to letting out their homes until the price index for their region picked up.
Why are there fewer rental homes despite rise of landlords?
Growing demand is a major factor in the shrinking supply of rental homes. Over the past decade we have seen a growing trend of ‘generation rent’, where property prices and deposit requirements mean a whole generation cannot afford to get on the property ladder and have no other choice than to remain in rental.
Add to this the recent legislative changes that have directly affected landlords, forcing many to sell their former buy-to let properties
What are the recent legislative changes directly affecting landlords?
Since 2016, landlords have been going penalised with an increase in stamp duty for owning multiple properties, have seen their tax reliefs cut and more recently it has just been announced that tenant fees are being scrapped.
These penalties have resulted in two likely outcomes;
- Landlords are offsetting this additional cost by charging their tenants more; which inevitable leaves ‘generation rent’ in an even worse position then they were before.
- Landlords are either selling or reducing their rental portfolios, as their yields are cost effective.
The areas that have seen the biggest fall in supply have also seen the biggest increase in rents. In the past 12 months, Wales has seen an increase of 11.3% on average rent amounts. To put this into context, a rental property that cost you £500pcm in June 2016 will now cost £555pcm, which is a yearly increase of £660.00
Director of Home.co.uk, Doug Shephard said:
It is ironic that the government’s justification for tax changes in the PRS was to ‘level the playing field’ for wannabe homeowners. The result of this barrage of red tape and taxation, at both local and national government levels, has meant that the supply of rental properties has fallen behind demand in most regions thereby driving up rents. Of course, it’s not the first time that government tinkering and tax grabs have backfired but the upshot for Generation Rent is appalling.
The ‘elephant in the room’ for the government is that record low mortgage interest rates have driven unprecedented investment in the PRS over recent years. Simply put, those already with significant home equity have been able to come up with deposits for properties intended to let whilst aspiring homeowners are as cash-strapped as ever as they pay out huge sums in rent. However, ultra-low interest rates and the associated pain for renters look set to persist for the foreseeable future.