A struggling economy has influenced parties on both sides of the rental fence in the United Kingdom (UK) as more young people are priced out of home ownership and into the rental market while more enterprising people with capital turn to renting as a business opportunity. The number of private rental units has increased dramatically across the UK, particularly in places like Birmingham, Leeds and Manchester, while the number of people seeking out those rentals has also went up. Meanwhile, in large metro areas like London private renters account for a significant number of households and are on the rise. For more on this continue reading the following article from Property Wire.
Results from the latest UK census show how the private rented property sector has grown over the past 10 years and the depth of the rental market at a local level.
The information reveals a rental market that is increasingly stratified with different drivers and constraints on rental growth.
Overall across England and Wales the number of private rented households grew by just under two thirds from 2.6 million to 4.2million between 2001 and 2011. Lucian Cook, director of residential research at Savills, points out that as younger households have faced increasing financial barriers to home ownership, the provision of social housing has been squeezed and the stigma around renting in higher income groups has been lost.
Though the census data suggests the private rented sector accounts for 18% of all households across England and Wales as a whole, levels tend to be concentrated in urban areas.
For example, across the five metropolitan boroughs of Birmingham, Leeds, Manchester, Liverpool and Bristol the number of private rented sector households has risen by 77% in 10 years such that they account for 23% of all households in these areas.
In these areas, the profile of rental housing is dominated by one and two bedroom properties, that together account for 63% of advertised rental stock, reflecting the dominance of young need based renters.
‘In the past two years, asking rents of two bedroom properties in these five markets have risen by an average of 2.5%. While continuing to rise, recent rental growth in the city markets of the Midlands and the North have been constrained by the weak underlying economic environment and the increase in stock levels in the lower tiers of the market in the past 10 years,‘ explained Cook.
Across the main urban rental markets of the South and South East, levels of private renting tend to be higher given greater difficulties in getting a foot on the housing ladder. Here the market tends to be divided between high value supply constrained markets, such as Oxford and Brighton and lower values that have seen much bigger increases in the level of renting, such as Southampton and Portsmouth.
‘Across this group, average two bedroom asking rents have risen by 8.7% in the past two years and by 4% in the past year. Within this group the strongest rental growth has been seen in the most expensive markets, where increasingly affluent groups of renters, unable to access mortgage debt, have widened the profile of tenant demand,’ said Cook.
Within the highest value markets of the South East, the private rented sector tends to be a much smaller proportion of all housing as the demographic profile is more weighted towards affluent family households.
‘This means the needs based rental demand of Generation Rent is less of a driver with family lifestyle renters more dominant. As a consequence in these markets rental properties of four or more bedrooms make up 25% of all advertised rental stock and three bed properties a further 20%,’ he explained.
‘Across these markets average asking rents for three bedroom properties have risen by 12.8% in the past 12 months, in a market where demand among owner occupiers for stock has limited the supply of available properties to those renting through choice,’ added Cook.
In London renting is more prominent than the rest of the country accounting for 26% of all households, though this varies from 11% in Havering to 43% in the City of Westminster.
Across the main prime boroughs of London, private renters account for more than one in three households. However, with the exception of Islington, the level of growth in the private rented sector has been below the average for London as a whole, Savills research shows.
‘Here the bulk of under 35s are priced out of the rental market unless they share with other young professionals, the other option open to them is to migrate to areas such as Hackney where the number of private rented sector households has more than doubled in the past 10 years,’ said Cook.
The data shows that growth in the private rented sector has also been strong in the least affluent boroughs. For example, in Newham levels of private renting have doubled, while in Barking and Dagenham they have risen by 176%.
‘In such markets, house prices have become increasingly dictated by the investment value of property. A consequence of low owner occupied demand leaves such markets more dependent on yield sensitive investor demand that has constrained levels of house price growth,’ added Cook.
This article was republished with permission from Property Wire.