UK private rental sector crisis: And it will only get worse.

The UK continues to suffer from a supply issue in the private rental sector, and as a result, rents have increased by 29% or nearly £300 a month since the start of the pandemic. The average rent increased by 12% compared to this time last year, according to research conducted by estate agents Hamptons. I have written extensively about the private rental sector's issue since 2016.

Many commentators will blame the rise of the short-term lettings market, such as Airbnb's, landlord departure from the market, rising interest rates or simply landlords getting greedy. The truth is that over 2 million social homes have been sold under the right to buy since the late 80s and only 4% of the stock has replenished.

The percentage of homes in the affordable rental sector has declined from 25.2% in 1988 to 16.6%. And the private rental sector has grown from 9% in 1988 to 18.6%. The private rental sector essentially bridged the gap between the loss in social housing from the early 90s up until 2016, when things changed slightly, and investment in the private rental sector stagnated due to successive government policies that have not been in favour of the small landlords but to encourage the build-to-rent sector. I wrote about this in my previous blog, and further policies, such as the renter's reform bill, will only make it harder to invest in the sector, which is crying out for investment, especially as interest rates rise and demand continues to increase.

What has been the issue since 2016?

Investment in the private rental sector since 2016 has stagnated predominantly due to legislation introduced by the government called Section 24. Section 24 is a legislation passed under the Finance Act 2015. The legislation removes landlords' rights to deduct most of their finance costs, including mortgage interest and arrangement fees, from their rental income before tax liability.

Before the introduction of section 24, the private rental sector between 2010 and 2016 grew by 3.7% annually. Since then, from 2017 to 2023, the private rental sector has only grown by 0.4%, resulting in a loss of 1.2 million extra homes that would have been available, putting less pressure on the rental market. And the population of the UK has since grown by 5.9%, and you can see why there is an imbalance between demand and supply.

Further policies such as new EPC legislation and the renter's reform bill banning section 21 (no fault evictions) have all been policies that have further declined investment in the private rental sector. The government has yet to do much meaningful reform in the sector but has sought to further damage it by introducing legislation that is ill thought and tackling issues that do not impact most renters. For instance, section 21 (no fault eviction notice) was given to less than 1% of the renters; rent increases until 2020, when section 24 was fully implemented, were less than 2% annually. 77% of tenants that rent from an independent landlord have not had to raise a complaint.

Yes, the sector is not perfect, and reform that benefits both the property owner and the renter is welcome, but basing policy on the experience of a minority and for the applause of the audience rather than actual substance is disingenuous, which is what the government has been doing for the last decade.

What does the future of the private rental sector look like?

According to recent research conducted by company BVA-BDRC, in Q2 of 2023, about 12% of landlords in England and Wales sold their property. In contrast, only 5% purchased properties to let during the same period. This shows that the supply will worsen as we go into 2024, meaning higher rents. Research also found that 37% of all landlords plan to cut the number of properties they let over the coming years.

There is more regulation along the way for private rental through the new renter's reform bill, and high-interest rates are likely to reduce investment in the sector even further. The issue is that the government needs the private rental sector to invest to help aid supply and relieve some pressure on the renters. The continued policy shift for applause is making things worse for renters and not better. The government needs to do better, but that is wishful thinking.