9:57 AM, 27th June 2011, About 11 years ago
The Smith Institute has recently published a report by housing policy expert Andrew Heywood entitled “The End of the Affair: implications of declining home ownership”. The report highlights the increase in the Private Rented Sector of the UK property market and considers its implications.
Key points highlighted in the report include:
Home ownership in England has declined to 67.4%, and this appears to be a continuing trend. There has been a corresponding and rapid growth in the private rented sector (PRS) in England to 15.6% (3.6 million homes) from a low of 9% in the late 1980s, after which it began to grow. Although the proportions are different in Scotland and Wales, there are similar trends.
The growth of the PRS over the past 20 years was a major success for successive governments. The Housing Act 1988 reversed three-quarters of a century of overregulation by introducing the assured short hold tenancy, allowing landlords to regain control of their properties by notice and enabling them to charge market rents. Labour introduced only very limited additional regulation to the sector and the Coalition has announced that there will be no additional regulation.
The availability of buy-to-let (BTL) mortgages after 1996 was a major factor in PRS expansion. There is now a funding problem in respect of the PRS, because of the reduction in the level of BTL finance since the banking crisis.
Overall, the government should accept that home ownership levels will continue to fall and should plan accordingly to promote the supply of rented property. This will involve finding a solution to the issue of funding the PRS. BTL finance will not be as generous as in the pre-2007 period and institutional investment is not currently attracted by the returns available. The 2011 Budget offered the prospect of financial concessions to raise financial returns in the PRS, but government may have to go further if an investment famine in the PRS due to a reduction in BTL mortgage finance is to be avoided.
A larger PRS may assist in the promotion of a more mobile and flexible labour force.
Demand is increasing all the time. For example the English population is set to increase substantially by around 30% in the next 25 years.
Government should urgently consider whether further targeted tax concessions to both individual landlords and institutional investors are affordable and could be made effective.
Andy Halstead, CEO of Let Alliance, said “This report provides an up to date analysis of current trends. Demand for good quality rented properties is continuing to grow. Government needs to ensure that there are adequate incentives for landlords to meet this growing demand”.
The full report can be read here
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