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The Private Rented Sector: Rising Demand and Falling Supply

The Private Rented Sector: Rising Demand and Falling Supply

Recent research on the rented sector released by Sequence and the Association of Residential Letting Agents (ARLA) paints a familiar picture. Whilst the supply of new properties available for renting continues to fall or remains steady at best, the level of demand increases. It could be said that the findings encapsulate the structural problems within the UK housing market as a whole – not enough new homes are built, purchase prices increase, mortgages are tougher to get hold of, and ever more pressure is placed on the rented sector.

Consequently market conditions look rosy for buy-to-let landlords. Figures from HMRC show that there are now around 1.6 million buy-to-let investors in the UK, with a further 120,000 having started up a property portfolio during 2014. The UK market offers some of the best returns to landlords in the world at the moment. Ultimately, though, the imbalance between rental supply and demand might benefit landlords but it hits tenants with rising prices.

The figures released by Sequence at the beginning of March show that during January of this year the numbers of prospective tenants looking for a rental property increased by 11 per cent on the year, whilst supply dropped by 13 per cent over the same period. For every 5 tenants only 1 property is coming on to the rental market, so prices are inevitably being pushed upwards. Excluding London the average rental price in the UK stood at £702 per month in January, an increase of 5 per cent on the previous year’s figure. In London the growth was higher, at 7 per cent.

The research released by ARLA covered the rental market in February, and showed the same trend. Letting agents registered with ARLA were surveyed on market conditions, with around a third reporting rental price increases over the month. The south-east had 41 per cent of agents reporting rises, and Wales only 13 per cent. The average number of rental properties available at each branch stood at 184, the same figure as during January, though London agents saw a particular decrease of 12.9 per cent down to 122 properties on average. Conversely the number of prospective tenants seen by agents rose from 38 in January to 40.  

The question therefore arises of whether anything is likely to change in the market in the foreseeable future. It’s hugely unlikely that new build figures will come close to meeting the number of new homes needed in the UK – 35 per cent of the ARLA agents surveyed were pessimistic about any post-election policies making a significant impact on the market. If more private investment were to go into building projects to provide rental properties then there may be some redressing of the imbalance in the market. Until then, though, it’s difficult to see things changing a great deal.

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