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By Richard Rowntree

Mortgages MD, Paragon Mortgages


Is The Private Rental Sector facing a Supply Crisis?

Bromsgrove is a classic rental market. The Worcestershire market town is enveloped by green space but is just a thirty-minute commute to the centre of Birmingham. 

It boasts good schools, a wide choice of leisure facilities and a nice selection of bars and restaurants. It's popular with renters from a variety of demographics but a quick search on Rightmove for two-bedroom rental properties reveals just four on offer. If you're a family seeking a four-bed property, you have the choice of one. 

For a town with a population of nearly 30,000, that's slim pickings. It's a problem towns and cities up and down the country are facing - there simply isn't enough rental stock to satisfy demand. 


Hometrack's recent Q3 rental index showed that available rental stock is 43% below the five-year average at a time when tenant demand is 55% above the average. But is this a short-term issue caused by the vagaries of the pandemic, or more symptomatic of a broader stock problem? 

The warning signs are certainly flashing red. 

Hometrack's Index highlighted that rental inflation hit a 13 year high in the third quarter, whilst the District Councils Network recently warned that 76% of local councils have seen a rise in landlords either selling or converting to the short-term lettings market, which offers more attractive tax terms. Its report says that nearly half of councils say their housing services are under "significant pressure" as landlords move out of this sector. It may seem odd to be talking about stock shortages in the private rented sector (PRS) when we have just had one of the busiest periods in many years for buy-to-let house purchase. 

At Paragon, we announced that we had lent £1.6 billion to landlords during our last financial year, a significant proportion of which was to buy new property. More broadly, industry data shows that between July 2020 and the end of September this year, just over 127,000 new buy-to-let mortgages were completed for house purchase, with a value of £20 billion. 

Add to that a significant number of cash buyers and you would expect the PRS to be in buoyant shape. However, what we don't know is how many of those transactions were recycled between landlords rather than adding additional stock to the PRS, or how many landlords decided to take advantage of house price inflation and sell into a rampant owner-occupier market. 

What we do know is that prior to the pandemic and Stamp Duty holiday, the market for buy-to-let house purchase had been in decline following the introduction of the three-percentage point Stamp Duty surcharge in 2016, plus changes to tax relief from 2017 which made rental property investment less appealing. 

This was a clear Government strategy to restrict the sector. Industry data shows that the number of buy-to-let completions for house purchase nearly halved from 117,500 in 2015 to just over 66,000 last year. 

This is reflected in Government housing data which highlighted that between 2016 and 2021 the proportion of households living in the PRS declined from 20.3% to 18.5%. According to the English Housing Survey, the number of properties in the PRS declined from 4.85 million to 4.25 million over the same period. 

From a Government policy perspective, the strategy of slowing the growth of the PRS has worked. Hamptons data showed that just shy of 250,000 landlords exited the sector between 2017 and 2019, whilst first-time buyer numbers have risen. Hamptons more recently reported that the exodus of landlords has slowed, but we are certainly starting to see the impact of that Government policy come through in stock shortages and rental inflation. 

This is likely to hit most segments of the market but will bite most forcefully on lower income private renters; those who may have once relied on the diminished social housing sector. A report by the highly respected University of York Centre for Housing Policy this summer questioned how sustainable PRS stock levels will remain for this segment of the market and there certainly seems to be challenges ahead. 

The Government must balance the different needs of the housing market. Prioritising one tenure risks leaving those on lower incomes struggling to either own or rent, whilst rental inflation will become the norm. As the population ages and more people rely on the PRS for longer, this could become a growing issue. 

There are further bumps in the road that could hinder PRS supply. New energy efficient rules that require all tenancies to have a minimum EPC of C by 2028 could prompt more landlords to leave the sector, whilst those landlords that entered buy-to-let as forty somethings in the mid-1990s are now hitting retirement age and we wait to see what this cohort does with their portfolios. 

It is often argued that build-to-rent (BTR) can pick up the slack from private landlords and that is something it is believed the Government favours. 

BTR certainly has a role to play and is successfully attracting largescale investment from institutions, but it remains niche and largely targeted at a particular segment of the rental market - urban, affluent professionals. It cannot meet the varied needs of the plethora of users of the PRS in the same way that private landlords can react to local changes in tenant demand, nor can it respond as quickly. 

Put it this way, there are no build-to-rent schemes in Bromsgrove. 

*Richard Rowntree is Mortgages Managing Director at Paragon Mortgages; Richard will be contributing monthly to Landlord Today's features section throughout 2022 

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  • icon

    The '' red light'' is certainly flashing for tenants here in Norwich, I have a list of suitable tenants for 1 terraced house, a decision will be made on Monday morning, sadly there will be several disappointed people, there is very little available here to rent.

    Matthew Payne

    Ive never seen such scarcity. There is one solitary property to rent in my local town, and even then its a new build that is new to the market. The secondhand market doesn't actually exist anymore.

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    A very well written article which comes as no surprise whatsoever to the cohort of Landlords reading it.

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    Really interesting to see what I think is happening in the PRS being backed up in this story. The Govt may well be achieving its goal of reducing the number of BTL properties and this will no doubt help some FTBs. However the people who cannot afford to buy and who don't qualify for Social Housing (or who qualify but can't get Social Housing) are being squeezed out of all forms of housing.

    I am one of those LLs approaching retirement and I will be off loading all of the properties in my portfolio that are below an EPC C (about 60%). I believe many other LLs will do the same and this will add to the squeeze. Some may go to LLs but most will probably go to FTBs.

    The reduction in the number of houses available and increasing rents make this an untenable situation for many renters whilst the Govt SDLT holiday, which pushed house prices to an all time high, has exacerbated the situation. We are in danger of creating a cohort of people who could never afford to buy and now can't afford to rent.


    I had thought the same but at 72 I am holding on and will probably use a letting agent in years to come but won't sell up.

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    No doubt its a great time to off load rubbish but you’ll have to be quick if not too late. Thinking about the ones LL’s want to sell not much good to first time buyers. I am sure the lenders will take a view on this and expect their purchase to be Compliant.

  •  G romit

    The Government won't react until there is a visible crisis, and is poltically damaging. Will this become apparent by the next General Election? Well not with the current state of the Opposition, so the next GE in 2027/8 maybe. So the Government led Landlord bashing continues with the forthcoming abolition of Sec.21 and raising MEES to "C" driving even more Landlords out, making the situation worse still. Long after permanent damage will have been done, then only with massive incentives will the Govt attract former Landlords back into the PRS.
    In the meantime Tenants will face an ever decreasing choice, and ever increasing rent levels. Property blocking will become the norm as Tenants struggle to find properties to move onto.

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    I was planning on disposing of about 50% of my properties as result of EPC C. However, with the direction of travel in rental rates, I'll shift just one or 2 and use the funds to get the remainder to C or better. Using the years coming to continue my IHT planning as well so the family can benefit from what I believe will be a smaller, yet still profitable, PRS.

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    As said above, a very well written article and for me right on point for today, the govt as usual do not give a monkeys......... my properties will not reach a C so i am selling them in about 5 years, even now when i put one up i get a line of people wanting to take it, god knows what is going to happen as the years roll by and other LL's do what i am about to do. If the govt were building millions more social properties i could see the overall direction of their thoughts, but we all know they are not, so the poor tenant of the future is totally stuffed. As with a lot of other LL's i am coming up to retirement so this has come as a not so bad time for me, i will sell and enjoy the benefits of my past decisions, but for the people who cannot afford to buy..... god help them, because one thing is for sure, the govt will not.

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    Yes, very accurate article. Simon Logan also very pertinent. Problm with Build to let is that their are insufficient professionals to rent the properties being built. However since the government is prepared to spend approx £70 k PA to house illegal immigrants, perhaps that is the market for them.

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    Indeed Edwin Morris, there is a ''hotel '' in my locality that has been taken over to house our channel crossing friends...... it was never a 5 star establishment but even so i have heard via a very reliable source that the govt (aka all of us) is being charged far in excess of what the daily rate was when it sat as a hotel. I truly do pity the generations to come, the older of us have had the very best of it, no social media,no internet, no mobile phones, less traffic, room to move (less people), cheap(er) property and all the woke nonesense which seems to be coming from everywhere. I do see possible social unrest in the years to come, some sections of society feel like rats in a trap at the moment with an underclass which feels there is nowhere for them to go, this govt and past iterations will rue the day they all took their eye off the ball.

    Theodor Cable

    Re read Enoch Powel's speech of 1968 (Rivers of Blood).
    He was right and it is happening.

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    Yes Simon, their seems a lot of similarites with Syria when a lot of young men turned up from all around the world expecting free housing and as many girlfriends as they wanted.

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    I neve read Enoch speech, but I was shocked at how he was hounded out of office, he served in WW2 and rose from a Private to a High rank. It appears he was right as well about how Rome fell, obviously the BBC has the opposite view. This breakdown in law and order which he prophesised affects all landlords because .an awful lot of tenants have become disenfranchised and corrupted by the resultant

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    I have never known such dearth of supply in my 35 years in the industry, both for sale and for rent.
    Big problems on the horizon in my opinion, and an urgent rowing back is required to stop landlords exiting the market and investing elsewhere (without the hassle and constant demonsation). Couple this with IMMEDIATE steps to cut through planning red tape and bureaucracy and the government might go some way to evading the ensuing supply crisis.
    It will be at least another 15 years before the build to rent sector dominates the market and there is a generation that need housing before that.

    Theodor Cable

    Does that mean then if I have a few houses for rent, will I likely get a much better rent?


    Most definitely rents are increasing at pace especially houses with gardens. In my opinion, 8-10% increases in rent for such property; not immediately and not all at once, but certainly over the next year.

  • Matthew Payne

    This isnt news, the PRS peaked in numbers in 2016 and has been shrinking ever since George Osborne started attacking the sector. It may be more newsworthy now simply because at the same time the social housing waiting list has been going in the opposite direction as has been EU migration, so the cracks are starting to get bigger, albeit as I have posted several times over a long period, this is no blinkin surpirise to anyone who understands how the market works. And its about to get a lot worse unless someone slams the truck into reverse.


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