After a healthy period of growth in private renting, Patrick Mooney, news editor of Housing Management & Maintenance magazine asks if the bubble is about to burst?

Could it be that we are finally seeing an end to the two-decade long period of sustained growth in the private rented sector?

Figures released by the Association of Residential Letting Agents show that something like a perfect storm is hitting prospective tenants and those looking to move.

Across the country letting agents are reporting increased demand for properties to their highest levels so far this year, while at the same time the supply of available properties is falling.

Surveyors are also saying that small-scale landlords are pulling out of the market

Patrick Mooney Patrick Mooney News editor of Housing Management & Maintenance magazine

Increased competition

This greater competition is feeding through into higher rents.

And according to David Cox, chief executive of ARLA Propertymark, the situation is only going to get worse for tenants unless the Government takes decisive action to improve conditions for private landlords and investors.

Commenting on the results from their latest survey of letting agents, David Cox said: “Buy-to-let investors are being pushed out of the market by increasing costs and continued regulatory change, and new landlords are being deterred from entering.

“Last month, an average of four landlords took their properties off the market per branch, up from three this time last year – and as supply falls, competition among tenants increases, which pushes up rent costs.

“Almost a third saw their rents rise last month, and although this figure was down from June, it’s still far too high. To put tenants back in the driving seat, we need more homes available to rent, and the only way this will be achieved is if the Government makes the market more attractive for BTL investors.”

Rent rise warnings

The average length of tenancy reported by the agents rose to a high of 20 months, the longest figure recorded in the ARLA survey. This could also reflect a lack of choice in the market, with tenants opting to stay in their current home rather than searching through a diminishing supply of available properties for a new rental.

Similar messages on the general state of the rental market have been given by the Royal Institution of Chartered Surveyors, who are warning that private sector rents could rise 15 per cent by 2023 as the supply of new rental properties dries up.

Surveyors are also saying that small-scale landlords are pulling out of the market, largely because of tax changes brought in last year which have made buy-to-let investments less profitable. Its members have seen the supply of new rental property falling consistently for the past two years.

Time for a review of regulation?

This could mean it is time the Government looked again at the way the private rented sector is regulated. RICS said its survey suggested that East Anglia and the South West of England were likely to see the sharpest growth in rents from now until 2023.

The tenant referencing firm HomeLet has also reported higher rents, with the average private rent in the UK increasing by 1.3 per cent in the past year while in London they were up by 3.3 per cent, passing £1,600 a month for the first time.

Strains on the supply side and on rents will not be easing the burden on any tenants, least of all those on low incomes and who are dependant on welfare benefits.

Hardship

The Chartered Institute of Housing has just released a report called ‘Missing the target?’ in which they claim the growing gap between private rents and housing benefit levels means that many low income households are being forced to make a choice between paying their rent, or paying for necessities like food, heat and clothing.

The Institute’s research shows that more than 90 per cent of Local Housing Allowance rates (housing benefit for private renters) across Great Britain now fail to cover the cheapest rents, as they were originally designed to do.

The rates were frozen for four years in 2016 and the Institute is warning that they have fallen so far behind even the cheapest rents that private renting has become unaffordable for most low-income tenants.

This is putting them at risk of homelessness as they are forced to choose between basic living expenses and paying the rent shortfall. The organisation is calling on the Government to review the policy and to end the freeze immediately. They estimate that a full realignment of LHA rates with local rents would cost around £1.2 billion

Income shortfalls

LHA rates are meant to cover the cheapest 30 per cent of homes in any given area. Because they have failed to keep pace with rents, tenants are facing gaps ranging from £25 a month on a single room in a shared home outside London to more than £260 a month on one to four-bedroom homes in some parts of London.

Over 12 months, those gaps rise to £300 and £3,120 – making it increasingly likely that renters will be forced to choose between paying for basic necessities like food and heating or their rent.

The Institute claims the policy is hitting single people aged under 25 particularly hard, because they are only entitled to LHA to cover the rent on a bedroom in a shared home. Even small gaps between their LHA and their rent can be serious because the levels of other benefits they may be entitled to (for example Jobseeker’s Allowance) are also much lower.

But if the current trend of small investors and landlords selling rental properties continues, then it is hard to see where a solution can be found. The Government is being urged to fund the development of 90,000 low rent homes a year in the social housing sector, but in its latest Green Paper on housing (published in late August) it failed to promise a single extra penny.

Patrick Mooney is news editor of Housing Management & Maintenance magazine.