The Rise of the Private Rental Sector

For those that are unaware of the history let us examine how and why the Private Rental Sector came to be so prominent over the preceding decades. Housing became a legitimate and sound financial investment by the coming together of many factors most of them being political. It now seems that there is some political will to remove housing from being an investment and returning it to being just for homes.

I feel qualified to address this topic because I have owned and rented property for decades well before the AST (Assured Shorthold Tenancy) came into being.  I had commercial property (in the days when that was a good thing) with flats above. Prior to the AST you could never have vacant possession unless a tenant died, therefore housing was not really a place where financial advisors suggested you put your money.

History of housing

Several things have happened over the past which have made huge social changes to life in the UK. The post-war years saw the development of new towns and lots of Council House building.  Plus a great deal of housing used to be tied to some jobs so that your employer provided you with a place to live. If you were a nurse,  the hospital provided you with accommodation via a dedicated Nurses Home. Ditto farm labourers,  miners, policemen or lock keepers, even station masters on the railway. So, for most ordinary working people home ownership was not the norm.

Politics

The Trade Unions were very strong after the war years and had close ties to the Labour Party. The Trade Unions and the Labour Party were Socialist and both promoted a strong Welfare State,  however, Socialism was morphing into Communism. The 1970s saw swings between Labour and Conservative governments along with massive inflation and industrial unrest.  All of that changed under Margaret Thatcher because she was determined break the Trade Union movement to promote self-reliance rather than State reliance.

Change

Mrs Thatcher presided over major changes to the British economy including the Privatisation of major British industries, the reform of the Trade Unions, The Right to Buy and the deregulation of finance.

Prior to the deregulation of finance working people seldom had a bank account. They were paid in cash, settled their bills in cash and if they saved at all it was with a Post office account or a loan club. If they wanted to send money anywhere else in the UK it was via a Postal Order not by cheque.

Those people that did aspire to homeownership could only ever get a mortgage from a Building Society. You had to be a member and have saved with them for a minimum period and the only money they had to lend was the pot of savings the members were saving every month. You only ever thought about your mortgage if you were going to move and there was no such thing as equity release. This is why older people have such housing wealth – they still live according to the old ways.

The deregulation of the money supply meant that Investment and Retail Banks are awash with foreign cash and want to lend money. At around the same time debt changed its name to credit.

Back to property, the money supply is now relaxed and banks are giving mortgages to anyone that can afford them. You need not be saving with them and you  can even self-certify and not provide any proof of income. Then the Buy to Let Mortgage arrived. This coupled with the AST has financial advisors pushing many of their clients into the residential property market and away from shares. If you have a sum to invest and very likely equity in your own home you can easily qualify for a Buy to Let mortgage. The initial investment is the deposit, the rent covers the mortgage for which you can get tax relief (in those days). It is a cracking investment you cannot find a better one and all perfectly legal. Having bought one, after a year or two with property inflation you now have a sizable capital gain and so your financial advisor suggests that you buy another, then another and that is where we are now and how and why there is a Private Rental Sector.

None of the above is the fault of the Buy to Let investor, they simply took advantage of the prevailing policies of the day. If another sector becomes more fruitful then the money invested in property will be moved elsewhere. If that happens and investors abandon the Private Rental Sector the housing crisis will become worse, not better.

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