New analysis from the Royal Institution of Chartered Surveyors (RICS) suggests that the UK housing market should be prepared for a sharp rise in rents over the next five years.
The professional body highlights in its latest UK Residential Market Survey that new landlord instructions are down 9% over the last three months, marking the eighth consecutive quarter that the growth in the number of new rental properties coming to market has been negative. RICS cites tax changes as a fundamental reason for smaller landlords exiting the buy-to-let market which is, in turn, creating a shortfall of rental homes that comes at the same time as rising tenant demand.
The shrinking supply of homes in the PRS, according to RICS, is expected to result in a cumulative rise of around 15% by the middle of 2023, with East Anglia and the South West suggested as being the areas which will experience the sharpest growth in rents.
Whilst a rise in rents means good news for buy-to-let landlords who can expect their returns to swell, the report does bring to light a growing problem in the sector. Sanctions on landlords owning second homes for the purpose of renting them out is beginning to have symptomatic consequences in the market, namely a restricting supply of quality homes for tenants.
Abdul Choudhury, RICS London Policy Officer, comments: ‘Our survey suggests that recent Government policy and legislation changes have impeded the growth of the Private Rented Sector (PRS), which is a vital part of a functioning homes market. Withdrawing tax breaks that small landlords relied on, placing an extra 3% on second home Stamp Duty, and failing to stimulate the corporate build to rent market, has understandably impacted supply.
‘While the current focus is rightly on using regulation to improve the experience for tenants, Government must urgently look again at the PRS as a whole, including ways to encourage good landlords.’ Choudhury makes an important observation here: the growth of the PRS is a direct result of a generation unable to purchase their own homes due to the current economic landscape and punishing landlords is not going to solve this issue – rather it will have a lasting and negative impact on the number of good landlords in the sector.
According to Choudhury, the government needs to seriously look at the impact of its policies unless it is going to offer a ‘suitable alternative’ to the PRS, for example affordable housing. With this unlikely to happen any time soon, more must be done by the government to support buy-to-let landlords who operate in the approved manner.
The current buy-to-let landscape is certainly an attractive investment option for those looking for the potential for good rental yields, low void periods and the opportunity to make strong capital appreciation, however it is crucial the UK government finds more ways to stimulate positive growth in the sector.
If you’d like to find out more about investing in the UK buy-to-let market contact us today to speak to one of our expert property consultants!
