House price rises and a shortage of social housing means that one in four households will be renting by 2015.
That’s the forecast according to accountants PwC analysis in its latest UK Economic Outlook report.
The report found that the number of households in the private rented sector has more than doubled since 2001, and this trend is predicted to continue with an additional 1.8 million households becoming private renters by 2025.
This would take the total to 7.2 million households – almost one in four of the UK total in 2025. The trend is particularly strong in the 20-39 ‘Generation Rent’ age group where more than half will be renting privately by 2025 according to PwC.
Also by 2025, PwC analysis finds that there could be slightly more people renting privately than owning with a mortgage. The number of households who own their home with a mortgage fell from around 10 million in 2001 to only around 8 million in 2014. This is projected to decline further to just under 7.2 million by 2025 as limited housing supply and mortgage availability make it harder for first-time buyers to get on the housing ladder.
Richard Snook, senior economist at PwC, said: “Driven by a decade of soaring house prices pre-crisis and lower loan-to-value ratios post-crisis, the deposits needed by first-time buyers have risen significantly. As a result, a generation of private renters have emerged and this will increasingly be the norm for the 20-39 age group.
“There is also a rising dichotomy in the market between those (mostly older) households who own outright and those (mostly younger) households who still have a mortgage or rent to pay.
“Overall, we project that the proportion of owner occupiers, with or without a mortgage, will decline from its peak of around 70% in the mid-2000s to only around 60% in 2025. The long rise in the UK owner occupation rate in the post-war years seems to have gone into reverse.”
John Hawksworth, chief economist at PwC, said: “In the long run, a large and sustained increase in affordable housing supply will be required to meet the needs of a UK population that is growing relatively rapidly by European standards. This could involve a range of measures including further planning reform, action to address skills shortages in the housebuilding sector and enhanced financial incentives to build more homes.
“But cuts to social rents announced in the Budget will tend to work against this for local authorities and housing associations, while private developers may be cautious about expanding too rapidly. So we expect housing supply shortages to persist for at least the next decade and realistically expect to see a continuing rise in Generation Rent until at least 2025.”
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