The shift towards Rental Britain shows little sign of slowing in the near future. Britons paid in excess of £48 billion in rent to private and institutional landlords. This figure is forecast to rise to exceed
£70 billion by 2016.

Whilst there is little doubt that rental demand will increase, the pipeline of new rental supply is likely to be the main constraint on the expansion of the sector. Over the past 10 years we estimate that over £380 billion has been invested in the private rental sector of which over £140 billion was in the form of buy to let mortgage finance. Rental Britain needs a further £200 billion to be invested in private rented sector housing to meet tenant demand over the next
five years.

We believe that in the order of 75% of this will have to be financed otherwise than by way of buy to let mortgages. This will require a combination of private and institutional investment.

Smaller private investors are likely to look beyond the short to medium-term, banking on a return to house price growth of inflation plus 2.5% to 3.0%. They are likely to balance income yield and capital growth prospects and invest across the UK. By contrast, larger institutions are expected to chase income yield more aggressively, particularly given relatively low house price growth prospects over the next five years.

In the short-term financially distressed stock will offer some opportunities and facilitate targeted investment in higher income yielding sectors, particularly those in the Midlands and North of England. However, our estimates of total return suggest that institutional investment demand will be focused in London and the South East, where repossession rates are lower.

To meet investor demands here rental stock will to be delivered by the new build market, in volume and at a discount.

To achieve this without impinging on the viability of development will require the planning system to formally recognise the need for private rented accommodation as interchangeable, to a greater or lesser degree, with affordable housing provision.

This may go against political aspirations for a nation of private sector homeowners and development industry funded social housing. But if we are to cater for Rental Britain it would appear to be a necessity.

Taken from
Special Report: Rental Britain