Understanding the Impact of an Increasing Age of Landlords on the UK’s Private Rental Sector
The UK's private rental sector is a vibrant and ever-evolving ecosystem, encompassing an array of stakeholders from tenants, agents and not least, landlords. One intriguing trend currently shaping this sector is the increasing age of landlords, who turned to property investment for income. In this blog we look at the potential impact of this trend
The English Private Landlord Survey 2021 (EPLS) was a national survey of landlords and letting agents who own and/or manage privately rented properties in England. It was commissioned by the Department for Levelling up, Housing and Communities (DLUHC).
The aim of the EPLS is to inform government understanding of the characteristics and experiences of landlords and how they acquire, let, manage and maintain privately rented accommodation. Similar surveys of private landlords were carried out by the department in 2001, 2003, 2006, 2010 and 2018.
The private rented sector is characterised by diversity and looks very different now than it did more than a decade ago. The number of households in the sector rose by 45% between 2008-09 and 2020-21, from 3.1 million to 4.4 million households. The private rented sector is now the second largest tenure in England, and is home to 19% of all households, compared to 14% in 2008-09.
Increasing Age of Landlords
The median age of individual landlords was 58 years old. This is older than the general population. According to the 2021 Census, the median age for the population of England and Wales was 40 years. Almost two thirds (63%) of landlords were aged 55 or older, representing 68% of tenancies.
As landlords get older, they inevitably start to dispose of their property investment. As the median age of landlords increases, the trend of older landlords selling their properties coupled with a concurrent lack of younger landlords entering the market has a widespread effect.
The impacts of these trends on the rental sector can be profound, potentially altering the nature of the housing market in the country.
Decreased Supply of Rental Properties
In the private rental market, landlords play a key role by providing the supply of rental properties. If older landlords choose to exit the market by selling their properties, and this is not counterbalanced by younger landlords or other investors purchasing these properties to rent out, the net effect is likely be a decrease in the overall number of available rental properties.
The supply and demand dynamic is a fundamental economic principle that heavily influences price. If demand stays constant (or increases, as is often the case given the UK's ongoing housing shortage) but supply decreases, this would put upward pressure on prices. In this context, the price is the rent charged for properties. So, a decrease in the supply of rental properties will lead to increased rents.
Furthermore, a limited supply could lead to increased competition among tenants, particularly for properties in desirable locations or those that offer better value for money. This competition could disadvantage certain groups, particularly lower-income tenants or those with fewer resources to navigate the rental market. In more extreme cases, if the rental supply is significantly decreased, it might contribute to a rise in homelessness.
It's important to remember, though, that these effects can vary by region and city. For instance, London, with its higher property prices, might see a more pronounced impact compared to other areas with lower property demand or prices.
Lastly, it's worth noting that while a decrease in the supply of rental properties could cause challenges, it could also present opportunities. For instance, there could be increased demand for social housing or other forms of affordable housing. Alternatively, a shift towards different models of home ownership could occur, such as shared ownership schemes. In other words, the dynamics of the housing market could shift in response to these changes.
Property Market Shift
When landlords decide to sell their properties in large numbers in a relatively short period of time, this injects additional supply into the property sales market. In an ideal world, younger landlords would step in to purchase these properties and keep them within the rental market, maintaining a status quo. However, if younger landlords are not investing to the same degree, this can result in a surplus of properties for sale.
In the short term, a significant increase in the supply of properties for sale, without a corresponding increase in demand, could put downward pressure on property prices. This could make home ownership more accessible for first-time buyers or owner-occupiers who were previously priced out of the market.
In the longer term, if the properties sold by older landlords are predominantly bought by owner-occupiers, this could shift the balance of the housing market. Instead of a large proportion of properties being buy-to-let, there could be an increase in the number of owner-occupied homes. This would represent a significant structural shift in the UK property market, which has seen substantial growth in the rental sector over the past few decades.
The Governments Role
The private rental sector (PRS) has been a vital part of the UK's housing market for decades. Housing a substantial proportion of the population, it's an indispensable pillar that deserves to be fully recognised for its importance.
However, the Conservative focus has always been on home ownership... going right back to their 1951 General Election Manifesto:
"Housing is the first of the social services. It is also one of the keys to increased productivity. Work, family life, health and education are all undermined by overcrowded homes. Therefore a Conservative and Unionist Government will give housing a priority second only to national defence. Our target remains 300,000 houses a year. There should be no reduction in the number of houses and flats built to let but more freedom must be given to the private builder. In a property-owning democracy, the more people who own their homes the better."
and not a lot has changed since then... apart from the increased importance of the Private Rental Sector within the UK housing market!
The Government need to understand the significance of the PRS and invest more in its development instead of continually generating policies to dissuade the younger generation of landlords from investing in it.
The reasons are clear:
Meeting Housing Demand
With the UK's population growth and changing demographics, the demand for housing has increased significantly. The PRS, characterised by its flexibility and variety, can cater to a broad spectrum of housing needs. Whether it's students looking for temporary accommodation, professionals in need of short-term leases due to job mobility, or families waiting for affordable housing, the PRS plays a crucial role. By recognising this, the government should be crafting policies that sustain a healthy, vibrant rental sector.
Supporting Economic Growth and Labour Mobility
The PRS is intrinsically linked to the UK's economic performance. It allows for greater labour mobility, enabling people to move for work without the need for home ownership, thus feeding into economic productivity. Furthermore, it generates substantial revenue through taxation and supports a range of ancillary industries, such as property management, maintenance, and insurance services. Recognising the PRS's economic contributions can help shape policies that promote its growth and stability.
A Solution to the Housing Affordability Crisis
The UK is grappling with a housing affordability crisis, with many people unable to access social housing or afford homeownership. The PRS can act as a bridge, providing accommodation for those caught in the middle. However, it can only fulfil this role if rental prices remain within reach for low and middle-income households. This highlights the need for policies that ensure a balanced rental market, preventing excessive rent increases while ensuring landlords receive a fair return on their investment.
Catering to an Evolving Society
Today's society is more fluid than ever. Traditional life paths – such as early homeownership – are no longer a one-size-fits-all solution. The PRS allows for this flexibility, providing an essential housing option for a society that increasingly values adaptability and choice. Recognising the role of the PRS in catering to these societal changes can guide government initiatives in fostering a flexible, inclusive housing market.
The Need for Quality Standards and Tenant Protection
While the PRS's importance is undeniable, it's crucial to ensure that it serves as a safe, secure housing option. This means implementing and enforcing quality standards and tenant protections. A recognised and valued PRS should not be a refuge for substandard housing or unscrupulous practices, but a sector that upholds high standards of living and respect for tenant rights.
The introduction of the Renters Reform Bill should go a long way to help 'clean up' many of these issues - if it is implemented and governed properly.
To conclude, the private rental sector plays a fundamental role in the UK's housing landscape, offering flexibility, supporting economic growth, acting as a buffer in the housing affordability crisis, and catering to evolving societal needs. Recognising its importance should encourage policies that support its development, promote high standards, and ensure tenant protection. In doing so, the government can ensure the PRS continues to serve as a vital component of the UK's housing solution.
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