It has overtaken the social rented sector and large scale investment into the private rented sector (PRS) by funds and other institutions is set to treble over the next five years boosting growth further, according to the new tenant survey from real estate firm Knight Frank.
The Tenant Survey carried out by YouGov on behalf of Knight Frank estimating that total investment will rise to £50 billion over the next five years and large scale investors are operating an average gross to net yield of 26% for new Build to Rent developments.
It also shows that some 53% of tenants favour a six month or one year tenancy for rented accommodation and 52% said living close to work or their place of study is a key priority while 30% said the main reason for moving between rented properties was to ‘upgrade’ to a nicer or larger property.
The survey found that 38% of tenants have lived in five or more rental properties and while the majority of respondents had moved within a mile of their previous property, some 19% had moved more than 60 miles, indicating a relocation for work or study, highlighting the flexibility of PRS as a tenure.
Some 24% of Londoners are prepared to pay 50% as a maximum amount of their gross annual income on rent, up from 22% last year and a quarter of those living in the PRS do not want to, or don’t know if they want to buy a home in the future. Of those that express a desire to eventually buy a home using a mortgage, less than half are currently saving towards a deposit.
Also, a quarter of those living in the private rented sector live alone, while 34% live in a couple without children. Some 43% of 18 to 24 years olds share with other adults in a flat share.
Grainne Gilmore, head of UK residential research at Knight Frank, pointed out that the private rented sector is continuing to grow in size, with around 5.4 million, or 20% of households now being let out to private tenants.
‘There has been a generational shift in the private rented sector. More households are now living in rented accommodation for longer, and while housing affordability is certainly a factor here, rented accommodation is also becoming an established flexible form of tenure, an attribute welcomed especially among younger workers,’ she explained.
Indeed, this was confirmed in last year’s Tenant Survey, with 38% of under 35s saying they didn’t want a mortgage or that renting suited their lifestyle, rising to 49% for those aged under 25.
The number of under 45s living in the sector has more than doubled, to nearly 3.1 million over the last decade, and those aged 25 to 34 now account for nearly 37% of PRS households, up from 32% in 2009, according to the English Housing Survey.
In terms of supply, the private rented sector is largely made up of private landlords, many of whom have one or two properties. This direct investment in property was driven by the rise in the availability of buy to let mortgage loans in the late 1990s. ‘New regulations on mortgage interest relief for buy to let investors from 2017 could lead to a modest slowing in growth in this market,’ Gilmore said.
‘However, this will likely be overshadowed by the rapid expansion of large-scale investment in the sector, with institutional investors such as pension and investment funds increasingly looking to purchase and hold purpose built rental accommodation over the longer term, bringing the UK in line with markets such as the US and Denmark where residential rented accommodation is a specific asset class,’ she added.
Knight Frank’s Investor Survey, one of the most comprehensive surveys of largescale investors in the private rented sector, indicates that investment is set to treble over the next five years. Knight Frank estimates current investment to be around £15 billion, rising to £50 billion by the end of 2020.
For those who do want to own a home in the future, last year’s survey also highlighted that the private rented sector is increasingly not being seen as just a short term form of tenure, but as a longer term housing option, with just 24% of tenants saying they would leave the sector within two years.
This is also reflected in the House Price Sentiment Index data compiled by Knight Frank and Markit Economics. The latest data shows that the majority of those living in the private rented sector anticipate buying within two to five years.
Gilmore also pointed out that the growth of the private rented sector highlights its establishment as a longer term form of tenure, especially among younger generations. ‘Affordability may play a part here, but our survey, builds on last year’s Tenant Survey, which highlighted that some 32% of respondents felt that as a form of tenure, private rented accommodation suited their lifestyle,’ she added.
