This year should be one of celebration for the few of us who believed, back in the 1980s, that residential property could and should be invested in as a commercial asset class.

Now, all these years on, significant deals have been done involving corporate, institutional and private wealth with more expected this year. This will start to increase the number of purpose-built, professionally managed homes for rent and tenants will have increasing choice. As supply rises, rents should also rise at more sustainable and affordable rates.

But the structural change in UK housing markets has already been profound. The number and value of market lets has already increased very dramatically since the rental nadir of 1989 and is still increasing. ‘Privately rented stock’ has risen in numbers and value – from £354 billion to £893 billion since 2002.

Rising rental demand has been met by small-scale individual landlords who, in common with most western countries, provide the bulk of market rented accommodation. Since the credit crunch, new private landlords have been those with equity and not the highly geared buy to let investors of the early Noughties. Among them are the ‘accidental landlords’ who have found themselves unable or unwilling to sell at current values so have let their properties instead, sometimes renting the property they then live in.

The increasing demand for rental accommodation shows no signs of abating as generations who, in the past, would have swollen the ranks of owner-occupiers are now excluded by lack of deposits.

Housing wealth is now concentrated in the hands of older generations and the amount of equity held in housing is polarising between these ‘haves’ and the younger ‘have nots’.

Releasing equity from the generation that has it to the generation that needs it is tricky. Not only is the amount that can be easily released, through downsizing for example, limited, it is most likely to be released through inheritance, or even trading, much later in life than the next generation of young families need it.

No wonder the average age of mothers at the birth of their first child is rising. Few twenty-somethings are able to become both homeowners and parents – and only a limited number of would-be grandparents are able to act as ‘Bank of Mum and Dad’.

Behaviours and barriers

It is ‘softer’ social issues like these that arise from housing market change, which are most likely to influence future policy direction. As time goes on, fewer politicians will be able to stomach the thought of the rental bill presented by a generation of pensioner-renters.

Nor will the dilution of wealth among the younger and more productive and entrepreneurial generations – who in times past would have funded new businesses by mortgaging the family home – prove so palatable. Home ownership is likely once again to creep up the political agenda.

Understanding the behaviours and barriers to the effective functioning of a trans-generational housing market and understanding the appropriate role of a functioning rental market within that will be key to appropriate policy response.

Taken from
Residential Property Focus Q1 2013

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