Build to Rent set to grow in the UK as individual landlords exit the market

Some £75 billion of investment will be committed to the professionally managed private rented sector in the UK by 2025 as the sector continues to grow due to demand, says a new analysis.

Indeed, an extra 560,000 households are expected to be renting a home by 2023, taking the proportion of housing in the private rented sector to 22%, up from 20.6% today, according to the multi-housing survey report from real estate firm Knight Frank.

It also shows that renters are getting older and those aged 35 to 49 make up the largest proportion of those living in the private rented sector. This age group is also expected to show the biggest growth in households in the PRS over the coming years, with difficulty in obtaining a mortgage deposit to buy a home remaining a hurdle.

The report suggests that the number of individual landlords is set to fall as the Built to Rent sector grows. As a result there is likely to be more demand in the Build to Rent sector where currently there are some 29,416 professionally managed units completed with 110,092 under construction or in planning.

This comes at a time when individual buy to let landlords are exiting the market with the report referring to mortgage data which shows that the number of new mortgages taken out by landlords has fallen over the last two years.

At the same time home ownership rates are falling, although the overall number of home owners is rising, as the population increases, the report also points out.

It also expects that the provision of social/affordable housing will increase over the next five years as a response to looser lending rules for councils, new Government funding for social housing and increased activity of registered providers in the land market in recent years.

The survey by You Gov for Knight Frank also found that affordability remains the key priority for 61% of tenants when choosing a property while more than one in 10 tenants said renting allowed them to live in an area they could not otherwise afford.

Location is the second biggest priority for tenants at 23%, followed by the size of the property for 10% and tenant priorities are more focused on internal amenities than external ones such as local shops.

It also found that it is a lack of a deposit that is the key driver for renting, though this ranges from 71% of young families to 41% of those aged under 25.

‘We are seeing a significant number of individual private buy to let landlords exiting the market as the Government’s buy to let tax changes start to bite. Large scale professional PRS landlords are well placed to absorb this, as well as satisfying some of the structural shortfall in our housing supply,’ said Nick Pleydell-Bouverie, head of residential investment agency at Knight Frank.

‘A principal constraint on the delivery of housing is the estimated rate of sales for developers. The institutional PRS market can significantly accelerate this through near immediate absorption. It is crucial that the UK Government resists further legislation and taxation and enables the PRS market to significantly contribute towards the UK housing challenge,’ he added.

According to Tim Hyatt, head of residential lettings at Knight Frank landlords could be squeezed further by more change. ‘Once again, affordability has emerged as a key reason for people choosing to rent in order to live in an area where they would not be able to buy,’ he said.

‘However, average rents in Britain rose 1% in the 12 months to December as more landlords leave the sector and levels of stock decline. The tenant fee ban, which comes in into effect in June this year, may also result in some landlords increasing rents to offset any extra costs,’ he added.