Growth expected in the private rented sector

The UK’s private rented sector (PRS) is going through a period of rapid change, which is affecting the housing market, according to AMA Research.

A recovering UK economy and increasing interest by both UK and overseas large institutional investors are key elements in the recent expansion of the PRS. Rising demand for professionally managed PRS accommodation has led to the emergence of large scale owners offering a bespoke, professionally run service to a growing market. Large institutional investors are now taking a larger share of the landlord market creating bigger schemes and driving supply.

The build-to-rent (BTR) sector has grown significantly in the last few years, in particular up to 2016, and the largest volume of BTR is coming through in urban city centres, including London, Birmingham, Manchester and Leeds.

The BTR sector is forecast to grow by 4%-6% a year to 2022, reflecting a combination of rising house prices, stagnant wages and tighter mortgage lending, and a shifting demographic balance, which includes the growth of ‘generation rent’.

The government has looked to the BTR and the PRS sectors to provide more new-build housing, introducing significant funding to support the sector.

The government is also providing debt guarantees to encourage institutional investment in PRS and sees this route as helping to improve the quality of the sector and vital for enabling new housing units to be built.

A number of additional measures to make the sector more attractive have been introduced, including a reduction in the requirements to provide affordable housing in planning obligations, improving access to and affordability of land, and a stable regulatory framework in which to operate.

Housing associations and local authorities have also increasingly been looking to the PRS as a means of alleviating local housing shortages and subsidising reductions in central government grant funding.

“The PRS industry and the BTR sector have grown significantly in the last couple of years, and this growth looks set to continue in the medium term, with the rental market expected to expand by over 1 million households over the next three to four years,” Keith Taylor, director at AMA Research, said.

“The trend towards increased private renting is expected to continue driven primarily by the younger generation rent demographic, which is being targeted with appealing lifestyle-branded homes.”

Around 75% of private rented dwellings by value are owned by private individuals, but institutional and large corporate investors are showing increasing interest, and institutional investors are expected to substantially increase their investment in the BTR sector over the next few years.