UK urgently needs 1.8 million new rental homes by 2025
Some 1.8 million new rental homes are needed urgently in the UK where the housing market is experiencing a sharp drop in the number of available properties to rent.
The housing shortage has been well documented and the Government has put building new homes for sale at the top of its housing agenda but new figures released by the Royal Institution of Chartered Surveyors (RICS) shows that the rental sector also cannot keep up with demand.
RICS says that the figures show an ailing rental sector at a time when sales of buy to let properties dropped sharply since stamp duty changes were introduced in April requiring landlords to pay an extra 3% stamp duty.
It also shows that 86% of landlords say they have no plans to increase rental portfolio this year and RICS believes that this trend is set to remain for the next five years yet the country needs 1.8 million new rental homes by 2025 to keep up with demand as rising house prices keeps home ownership unaffordable for many.
Overall a net balance of 58% of RICS estate agents have reported a drop in buy to let sales since May and this comes at a time when the number of UK households renting property has doubled from 2.3 million in 2001 to 5.4 million in 2014.
RICS points out that earlier this year, the Government took measures to dampen the demand for buy to let investments by making changes to the Stamp Duty threshold. According to Jeremy Blackburn, RICS head of UK Policy, this has further reduced supply, arguably making a 2025 rental supply crisis more likely.
‘The problem is expected to be exasperated next year when landlords’ right to deduct their mortgage interest from their income tax bill is removed. We urge the Prime Minister to abandon David Cameron’s previous home ownership focus and reverse April’s Stamp Duty measures in order to address short term rental supply issues,’ he said.
He explained that he the Government could take a much bolder long term approach and pioneer a new build to rent sector with the private sector encouraged to build properties specifically for residential letting.
Pension funds, for example, could be incentivised with tax breaks to build large scale rental properties with affordable elements. Additionally, local authorities holding brown field sites could be encouraged to release land for such properties.
‘We are facing a critical rental shortage and need to get Britain building in a way that benefits a cross section of society, not just the fortunate few. Our latest figures show that there has been a 15% decline in house sales to first time buyers over recent months. That tells us that for all the rhetoric, David Cameron and George Osbourne’s Starter Homes Strategy failed to get off the ground,’ Blackburn said.
‘The Private Rented Sector became a scapegoat under the previous Prime Minister, and because of that it suffered. Yet with increasingly unaffordable house prices, the majority of British households will be relying on the rental sector in the future. We must ensure that it is fit for purpose, and the Government must put in place the measures that will allow the rental sector to thrive. Any restrictions on supply will push up rents, marginalising those members of society who are already struggling,’ he added.
According to Helen Gordon, chief executive of Grainger plc, one of the UK’s largest residential property owner and manager with a portfolio of around 9,000 rental homes across the UK, build to rent is an obvious step to take.
Earlier this year, Grainger set out a plans to invest a further £1 billion into the rental housing market through build to rent and so far, the company has secured £268 million investment in the sector, which will deliver some 1,200 new homes to rent.
She believes that build to rent can help the Government by increasing housing supply, by delivering more quickly than other traditional house building models, through creating new jobs and contributing to town centre regeneration, by providing a better deal to customers including more stability and by supporting greater flexibility in the labour market.
‘We have an ambitious plan to invest over £1 billion by 2020 in high quality, long term rental housing. In order to support us in this ambition and many others with similar plans, the Government should recognise the important role we have to play and explicitly support build-to-rent in its policies,’ said Gordon.
‘Importantly, the Government could ensure the planning system and regulatory red tape does not hold back investment, and it should ensure that it does not inadvertently penalise large scale investors through tax measures such as the stamp duty 3% surcharge on second homes, which discourages large scale, institutional support for new rental homes in the UK,’ she added.