Is “vilification” of landlords pushing them out of the market
The rise of the private rental sector has been phenomenal. Twenty-five years ago, a group of mortgage lenders and estate agents met at the Royal Automobile Club in London, changing the housing market forever. The year 1996 saw the launch of buy-to-let (BTL), a new mortgage product for private landlords. Today, according to an analysis by Savills, the UK private rental sector is worth £1.338 trillion.
However, a lot has changed since, according to TwentyCi, the number of available rental properties has fallen this year to its lowest point since 2017. In October, there were 214,938 rental properties advertised, compared with 339,516 during the same month five years ago.
Chris Norris of the National Residential Landlords Association said rising mortgage rates, changing regulations and "vilification" of landlords were pushing them out of the market. We try to understand what is leading to landlords exiting the private rental sector in such large numbers. But first, we understand how the private rental sector grew so quickly.
BTL exists due to the government's failure on social housing:
Robert Jordon, who was the president of the Association of Residential Letting Agents (Arla), says that leading up to 1996, successive government policies such as reduction in social housing, accelerated by Right to Buy (RTB), led to a rise in demand for private rentals in the early 1990s. Over 2 million social homes have been sold, with only 4 per cent of these replaced. Social housing stock between 1980 and 1989 alone declined by 529,878, as the table below highlights.
This decline in social housing, coupled with the right to buy, led to private landlords entering the market as the double-digit interest rates, high unemployment, and a housing bust was taking the shine off homeownership. According to English Housing Survey, there are now 11 million private renters with an average age of 41.
The private rental sector would not exist in such a dominant fashion today if the gap left by the lack of social housing due to policies such as the right to buy was fulfilled by fresh social housing stock. Inside housing estimates that over 40 per cent of right-to-buy properties are now privately rented.
The government's failure to solve the real issue has sought to target or, as Chris Norris of NRLA puts it, "vilify" landlords by introducing more taxation and regulations in the hope that the market may sort itself out. Still, it is having quite the opposite effect.
The chart below highlights that the per centage of homeownership since the late 1980s has remained somewhat unchanged from 65.6 per cent in 1988 to 64.8 per cent. The per centage of homes in the affordable rental sector has declined from 25.2 per cent in 1988 to 16.6 per cent. And the private rental sector has grown from only 9 per cent in 1988 to 18.6 per cent.
More taxation and legislation will not solve the issue of increasing rent and people being able to afford to buy their own homes. Only building more social housing will help address the problem, which the government looks unlikely to address.
More taxation and more legislation:
The issue of housing affordability has risen to the political agenda; there has been a push to tax second homeowners more heavily and regulate the industry to improve housing conditions for those in the private rental sector. This has led to new legislation, from electric safety reports to compulsory licensing in some parts of the country. BTLs will need an energy performance certificate rating of at least C by December 2025 for all new tenancies and by December 2028 for all private rentals.
Since 2016, landlords have had to pay a 3 per cent stamp duty surcharge, and tax relief on mortgage interest was scrapped in 2017. NRLA is calling for both policies to be discarded. Ben Bradley, chief executive of the NRLA, says, "These were based on a mistaken belief that homeowners were taxed more heavily than landlords, and leave landlords, unlike any other business, paying tax on their turnover rather than profits."
The majority of landlords are good landlords:
Governments' analysis estimates that 21 per cent of all privately rented homes are below acceptable standards. While we can agree that 21 per cent is an unacceptable number of homes, that also means that 79 per cent of all private landlords are providing a good or satisfactory service.
According to an analysis by NRLA, a fallout of the pandemic has left an estimated 210,000 private renters in England and Wales facing court orders for rent arrears. And now, the government is proposing to abolish "section 21" no-fault eviction through the Renters Reform Bill.
All these factors, along with more taxation and regulation, are driving landlords to move towards short-term lets such as Airbnb. Research carried out by campaign group Generation Rent shows that there are 5,049-holiday lets advertised in the Scottish Highlands, but just 15 properties to let long term. In Pembrokeshire, Wales, there were 3,671 holiday lets and just 24 homes to let long-term.
A survey by NRLA members found that 60 per cent of landlords own one property. 44 per cent use the income to supplement their pension, and 30 per cent have a gross non-rental income of less than £20,000 a year.
The government's policy on further taxation and regulation in the private rental sector is making things worse for supply. More and more landlords are deciding to leave the private rental sector and either move to short-term lets or sell up, as it is becoming financially unviable to be a private landlord.
Some might think landlords selling up is a positive as there will be more housing supply for first-time buyers. However, the issue is that there are still 11 million people who want to rent, and the number is growing yearly. Even with the number of landlords leaving the market, the upturn in supply has yet to happen, as home supply is at an all-time low. This will only further increase the costs of private renting.
The reality is that the failure of successive governments to build more social housing has led to this crisis. And more taxation and more regulation have made things worse. As it fails to address the more significant issue, it might serve the government politically well to continue to vilify the landlords for a crisis of their own making.