What we’re looking at here is simple supply and demand economics. If a product or service is in scarce supply, the price will go up.
We need to focus on why there is such a shortage of rental stock available in the first place, which only looks set to get worse.
Speaking to colleagues in the lettings industry, I hear frequent stories of tenants going through a beauty parade when trying to rent homes, attempting to get the edge over other prospective tenants by advertising their credentials. For me, that’s a sign of a dysfunctional market and tenants are paying the price.
The stock shortage is being caused by two key reasons. Firstly, tenants are staying in their property for longer, so the liquidity of the rental market doesn’t exist to the same degree as pre-pandemic.
Secondly – and more fundamentally – landlords have either been selling up or moving into the short-term lets market. Zoopla data shows that around one in 10 homes currently for sale have been let during the last three years.
Additionally, the latest English Private Landlord Survey (EPLS) showed that 10 per cent of landlords plan to sell their property and exit the market over the next two years, up from 5% who replied to this question when asked in 2018.
The main driver behind the desire to leave? Legislation.
Over half of landlords, 55 per cent, said that the plethora of legislation was central to their decision to quit, with 53% citing upcoming legislative changes, such as changes to Section 21.
Nearly 170 pieces of regulation govern the industry – some dating back to the 18th century - so you can understand the frustration.
Landlords have been the political football for years now and we are now seeing the impact of the changes to Stamp Duty and tax relief playing out in the market. I have said many times that being a landlord is not easy; the tenant relationship is generally positive but many landlords have war stories about arrears, anti-social behaviour and damaged property.
For many, the hassle is becoming too much to justify carrying on. Forthcoming changes to EPCs will only exacerbate this trend and send an increasing number to the exit door.
My sense is that it is the smaller landlords who are leaving at this stage. The EPLS showed there are a huge number of ‘accidental’ landlords in the market; those who inherited property and found themselves with a home to rent after forming a new relationship. The house price inflation of the past two years has been an extra spur for some of those to sell-up.
The danger for the housing market, PRS and – let’s be honest – the government is if the professional landlord decides enough is enough. Just under a fifth of landlords own nearly half of stock and any significant movement of these landlords towards downsizing their portfolios could be catastrophic.
The signs are that this isn’t the case presently. A total of 35% of landlords who rent property as part of a company said they planned to buy more properties in the next two years compared to nine per cent of individual landlords or plan to do so.
But patience is wearing thin. Government needs to recognise the role these landlords play in providing a good quality home to millions and understand their importance to the housing market before it is too late.
* Richard Rowntree is Managing Director for Mortgages, Paragon Bank *
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