Demand for rental property in England and Wales and a 5 year high

According to recent research released by the National Residential Landlords Association (NRLA) demand for private rented accommodation in the UK has hit a 5 year high.

The NRLA (in conjunction with research consultancy BVA.BDRC) recently undertook a survey of private landlords in England and Wales.

The results make compelling reading, with 39% of landlords reporting that they demand for rental property increased in Q2 2021, an increase of 8% on the previous quarter.

The research highlights that demand for rental property has reached a five year high (the last time a similar peak was seen was after the GFC in Q1 2012).   Several factors can be attributed to this current increase in demand, including a relaxation of lockdown restrictions and a buoyant economic outlook.    The report also highlighted:

  • Sentiment varied across geographical locations, with 60% of landlords in the south east, south west, Yorkshire & Humber and Wales reporting that demand increased in Q2 2021 (compared to Q1 2021), compared with 15% of landlords in central London reporting the same. 
  • The number of landlords looking to purchase new property in Q2 2021 declined from 19% in Q1 2021, to 14% in Q2 2021.  Chris Norris, Policy Director for the National Residential Landlords Association said  “The evidence is clear that nationally whilst the demand for homes to rent is increasing, landlords are more reluctant to invest in new properties. The only losers will be tenants as they struggle to find the homes to rent they need. The Chancellor needs to recognise the harm being done by tax hikes imposed on the sector.”

The article from the NRLA can be found  here https://www.nrla.org.uk/news/demand-for-rental-housing-at-a-five-year-high

We have been here before

We have been here before and heard stories as to why the London market will decline and other northern markets will flourish. The reality is, you only now need to make a journey on the tube in London to know this is simply not the case. Today, the first day back to school for many children after the summer holidays, it was once again standing room only on the tube as commuters once again flocked to the capital.  Commuter trains operating in outer London boroughs and commuter towns and are also filling up, with commuters no longer having the ‘luxury’ of a guaranteed seat on the train.

The reality is that London accounts for almost a quarter (23.8% Gross Value Added) of the UK’s economic activity. It is simply unrealistic for one to assume that the infrastructure could simply relocated elsewhere and that the capital will suffer from a brain drain. Sure, there is a certain amount of people who will always move from the capital due to changes in life circumstances and no doubt some will be able to work from home and may well move from out of town, but this natural attrition has always taken place in London, it seems somewhat irrational to assume this trend will now apply to anyone of working age.   

Will property prices increase in London?

There is no doubt that property prices across the UK will experience significant price growth in the coming years and properties in the northern parts of the UK will experience price growth. However, I believe the overwhelming growth will occur in London and the southeast. Here is why.

Demand for Rental

Demand for rental property declined in London and so did rents. This was largely because there was nothing to do in the capital – it was effectively closed. In addition, a significant amount of rental stock which would normally be available for short-term lets on websites such as Airbnb was available for long-term lease. This created greater amounts of rental stock putting downward pressure on rents. As things return to normal and travel and tourism to the capital returns, much of this stock will once again become available for short-term let removing it from long term rental stock.

UK Landlords are Selling Up

Often less talked about, is that many traditional UK buy-to-let landlords are choosing to take sell up now whilst the market is good.  Some landlords are exiting the market completely, whilst others are reducing the size of their portfolios.  This is due to market conditions, but more principally because of tax. For UK resident landlords, especially those who are highly geared, the changes to how mortgage interest is recognised against costs, mean that a significant amount of income is eroded. As landlord’s sell, the volume of available rental stock is reduced putting upward pressure on rents.

New Supply of Housing

New housing supply in London is now at its lowest point for several years – many of the top tier housebuilders who would have typically built in the capital are focusing on developing outside of the capital. Whilst this leaves a gap in the market to develop new property, the reality is the costs of developing new properties in London mean there are only a small amount of developers with deep-enough pockets to build. Additionally, because obtaining a new consent to build takes so long, (it can be years!) it is unlikely that new supply will come on stream quickly.  Lower supply will of course put additional pressure on property prices and rents.

Working from home doesn’t necessarily mean moving home

There is no doubt that the way in which people work and more importantly where they will work from will change. This change has not occurred because of COVID it has simply accelerated that rate at which that change takes place. Part of this change means that people will have greater flexibility in where they can work and no doubt working from home will be part of that. However, working from home doesn’t necessarily mean moving home.

Conclusion

We have been here before.  Following the Global Financial Crisis people claimed the property market would not recover and that the real estate market was finished.   But, for those who were wise enough to have invested whilst the naysayers were advising otherwise, they benefited from significant capital growth.   It’s my opinion that we will see the same thing happen with property prices in London now.  

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