The Forecast Issue
Defying the odds
Despite extra taxes and regulation renting is set to continue to grow.
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Many of the economic risks set to affect the housing market may also support continued growth of the private rented sector. Heightened uncertainty in the sales market is likely to see potential purchases delayed as first-time buyers wait to see what will happen to the price and availability of homes. Rental prices are usually closely tied to wages and unemployment, but as people stay in the rental market longer, that increases the demand for rental property – and should increase its price.
While tenant demand is set to grow, quite how supply will respond is harder to predict. The introduction of the 3 per cent stamp duty surcharge for landlords in April this year and the prospect of the tapering of income tax relief on mortgage interest from 2017 will reduce the appetite of many smaller landlords. Following the spike in landlord purchases in February and March 2016 as investors brought forward purchases where they could, the higher rates have resulted in landlords buying fewer homes.
More experienced landlords who may see an opportunity to restructure their portfolios into limited companies should be able to benefit from lower corporation tax allowing them to continue to contribute to the supply of rented homes.
And as rents rise in many areas it creates opportunities for different types of landlords. Given the ability of larger, institutional investors to take a longer term view of market conditions, it may be that it is the build-to-rent sector which is best placed to ride out housing market uncertainty and build more homes for renters. The housing policy of the new government will be very influential in how much the sector can deliver.
The demand for rental accommodation will continue to be strong and that will make investment in the private rental market attractive. This is particularly the case as there is still insufficient supply of housing in the UK to buy, and the possibility that greater uncertainty about the sales market will lead to increased demand for rented property.
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