The Long Term Growth of the Private Rental Sector as Demand Spikes by 57%
Landlords, property professionals and investors have a bright future ahead, according to Propertymark, which has revealed new data showing that demand for private rental accommodation has risen significantly by 57% over the last four years.
Rental properties, as an inflation-resistant asset, have proven a positive component of a long-term investment strategy, providing capital appreciation over time alongside increasing rental yields as more and more tenants turn to the private sector for quality accommodation.
Further, as some landlords choose to sell, mainly due to reluctance to adapt to changing regulatory requirements, those rental properties that remain available have attracted additional price premiums where slow sector growth places higher demands on capacity.
What Are the Prospects for the UK Property Rental Market?
Apprehension is natural, where landlords may have seen mortgage interest rates increase during the last few months as a result of rising base rates and persistent inflation – but, over the coming years, those remaining invested in the sector look set to reap the rewards.
Current price pressures are expected to decline by the second part of this year. The National Institute of Economic and Social Research indicates a ‘rapid fall’ in inflation as the year progresses.
Forecasts of short-term dips in property values are an aspect of course correction and a typical part of the economic environment, similar to the fluctuating price landscape following the pandemic lockdowns – but a return to gradual, steady appreciation looks highly likely.
Indeed, the current volatility may make selling as a knee-jerk reaction an unwise decision, where properties may not achieve their full potential selling price. In contrast, higher demand could return a more profitable yield than seen before.
As property professionals operating across the West Sussex region, we have seen substantial interest, waiting lists and enquiries from families, professionals and business owners looking for premium homes within commuting or travelling distance of commercial areas and schools.
This level of demand has been replicated nationwide, and regarding an investment property as a longer-term investment may be an excellent opportunity to achieve an immediate secondary income plus a sizable asset value.
Why Is Demand for Private Rental Properties Growing?
As we’ve touched on, the reason the private rental market is expected to reach 5 million homes within the next two years is that there hasn’t been enough growth in the sector in terms of the number of properties available to let, to match the pace of increasing demand.
Social housing is a complex area, but with very low availability, issues with quality and housing standards, and backlogs of applicants, thousands of tenants now prefer the assurance and experience of renting from a reputable, private landlord.
The Propertymark survey shows that prospective tenants registering with agents who are association members reached an average of 147 per branch, coupled with increasing yields.
Another aspect is that, with high-interest rates, first-time buyers and prospective owners may not be able to purchase a property until rates fall – further increasing demand for rental homes over the next 12 to 24 months.
What Is the Future of the British Private Rental Market?
A study conducted last year by the Social Market Foundation on behalf of Paragon Bank shared interesting assessments of how the market will evolve over the next 12 years, looking at prospects and projections for private rentals in 2035.
The independent report supported the expectation that rental demand would continue to rise and modelled estimates that, in the next few years, as much as half of all UK households would be privately rented accommodation.
Interestingly, there is a likelihood that the proportion of more mature renters aged 35 to 54 will grow, whereas a larger number of people will expect to remain in private accommodation in the years ahead, often due to the cost of purchasing a property.
Landlords can incorporate these findings into their plans to decide how best to manage portfolios and identify new investment opportunities that fit well with the expectations and demands of the changing tenant demographic.
Statistics and Forecasts
Some of the key takeaways of the report include:
- 81% of tenants renting privately are content with their accommodation and relationship.
- Mature tenants are increasing as a proportion of renters, with varied priorities such as stability and proximity to transport connections and shops.
- The growing appetite for longer tenancy agreements and flexible terms that allow tenants to modify their homes with prior written agreement from the landlord.
The report also notes that the investments made by landlords into the quality of private rental accommodation have contributed to higher overall standards. Over the last 15 years, rental properties have become more energy efficient, larger, and typically of newer construction.
Is Property Still a Viable Long-Term Financial Investment?
During any period of flux, changing legislation or increased cost pressures, albeit temporary, we tend to see peaks in the number of properties listed for sale, often a decision made without having the insights that help property owners make astute, informed judgements.
The rise in demand for quality homes is undeniable. As rental prices increase to reflect higher property running and management costs, many landlords will achieve more profitable yields, both now and in the future.
Other statistics and analyses by respected industry experts support the belief that private rental remains a secure and advantageous investment. Those who retain properties, expand their portfolios or take strategic advantage of the anticipated dip in property sale averages later this year will benefit considerably.
Even though inflation and higher consumer costs are widely expected to plateau and fall towards the end of 2023, demand is not on a similar downward trajectory. Property investors focused on standards, regulatory compliance and accommodating the needs of high-quality tenants will be in a strong position.
For more guidance, predictions and prognoses for the private property rental market, average rental yields in your area, or advice on managing your portfolio during uncertainty, please get in touch with the Tod Anstee team for professional support from the local property specialists.