This issue describes a UK housing market that is diverse and fragmented, where conflicting signals on activity and price growth confuse those who are trying to put together the jigsaw puzzle of house price forecasts. Download here.

The private rented sector grew by some two million households in the UK in the decade to 2011, much of the largest growth being in the mortgage rationed period since 2007. Despite initiatives to support home ownership, we expect the sector to grow by a further one million households in the next five years.

Our recent survey of 2,800 existing private sector tenants, in association with YouGov, indicates that renting is still seen as an intermediate step to home ownership by a large percentage of private renters. It shows that the main reason for renting is the prohibitive cost of raising a deposit to buy a property. However, difficulty in meeting lending criteria becomes an increasing constraint for older households who are longer term tenants, which we expect to be a pointer to the future.

The needs of tenants

As a consequence, the need for longer term tenancies is much less evident among younger households for whom flexibility is more attractive. For older households in the sector, there is much greater appetite, although in the 35-44 age bracket some 30% of renters still do not agree that they need a longer term.

What becomes very clear is the need for a better standard of accommodation. This is cited as the single biggest reason behind moving within the sector; being more relevant than the level of rent. As a consequence those looking to provide rental stock, particularly the institutions, are keen to understand the needs of tenants and the features that add value.

Location and proximity to public transport are critical to an urban rental population. The survey results indicate that this, together with providing a good standard of basic accommodation and management, are most important to tenants.

Taking a cue from the multi family models of the US, there are additional facilities and services that have the potential to add value, particularly among the expanding pool of more affluent renters. Those with the greatest current potential are physical amenities, though in a sector where there has been little provision of additional service this is likely to evolve.

All of the above indicate that the private rented sector will develop as it expands over the next decade. To facilitate this requires private renting to be given much greater prominence in government policy.

This policy should specifically be aimed at encouraging significantly greater supply of an appropriate standard of accommodation on terms that meet the changing needs of tenants. To do so through incentives is likely to be most successful in a sector which could be inhibited by excessive regulation.

Taken from
Residential Property Focus Q4 2013

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