Why are Landlords fleeing the rental market when demand outstrips supply?
Renters across England are struggling to find and rent properties, as landlords sell up and leave the property market.
Lettings agents and local charities have lists of tenants waiting for new properties, meaning those that look best of paper are getting first choice – whilst others tenancies end without anywhere to move.
What’s the problem?
The private rental section provides the majority of accommodation for renters – in the UK accounting for 19% of all housing.
In 2020 a quarter of all UK landlords planned to sell up, pushed by rising landlord taxes (section 24), increased costs of letting (as fees previously paid by tenants, are now paid by landlords) and further legislation coming in to play.
Accidental landlords, who typically live in a property and relocate until they can afford to sell, have left the market – selling their properties in a buoyant market. Tired landlords who are fed up with legislation, dwindling returns and increased headache have sold too.
With the boom in staycation and people taking holidays in the UK, landlords have converted their stock to holiday homes. Holiday homes can achieve a higher income, pay less tax (as the tax can be deducted as a cost), have no tenants and request a guest to leave at any point.
So tenants in the UK rental market are struggling, the number of available properties has fallen whilst demand has not.
Councils across the country warned, in 2021, they had seen a rise in waiting lists and with lack of private rental stock available it was becoming harder to provide permanent accommodation.
What is the solution?
- Introduce further legislation to make it harder to evict tenants?
- Introduce rental caps to ensure housing is affordable for tenants?
- Start building and offering more local housing authority stock?
- Tax developers and increase Section 106 agreements to offer more social housing?
Look to Ireland..
Across the Irish Sea, Ireland have been introducing legislation (much like the UK) and changing their approach to tax. Though landlords are, in effect, business owners – and look for reward for their effort – if there’s no reward, why invest and offer good quality housing? So Irish landlords have been voting with their feet, selling.
Irish landlords had their rent increases capped (similar to regulated tenancies in the UK), which could only be significantly improved once the property was sold to a new landlord or investor. It’s easy to see why last year in Ireland 24.2% of all properties sold were ex rental properties.
So does increasing legislation work to provide and manage rental stock? Evidently not, it’s getting harder and harder for tenants in Ireland to find a place to call home.
Look historically..
In the 1970’s the private rental sector accounted for 10% of the housing market, landlords were unable to charge a market rent and properties would be sold with sitting tenants – who were entitled to continue paying those rents.
Then in 1988 Margaret Thatcher introduced the Assured Shorthold Tenancy was introduced allowing landlords to offer properties for a fixed period of time, whilst allowing landlords to remove tenants if necessary.
Reducing legislation caused the property market to boom and rental market to swell, allowing tenants to find housings (to suit their budget) across the country.
Rental Economics
Natural economics show when demand outstrips supply prices increase (and visa versa) – though when balanced prices typically remain the same. A good recent example is the stagnation of property prices in London (prior to 2020) where European employees attempted to sell and leave due to Brexit – demand fell, more accidental landlords occurred whilst both rental and property prices flat lined.
What’s the opportunity for landlords? And how can are tenants be helped?
With rents on the rise and supply out stripping demand there’s a few opportunities to help solve the situation:
- Convert oversized properties in to house shares, with bills included, allowing tenants to pay one single fee a month that’s affordable and easy to manage – reducing demand on studios and flats – helping to balance the market.
- Permitted development rights are allowing unused commercial building to be converted to residential. For private landlords, with the right knowledge, they could start converting buildings in to small build to rent schemes – offering modern, good quality, energy efficent accommodation in one building. If bought, refurbished and built in a LTD company, there’s tax benefits too.
How can tenants improve their chances, right now, when looking to rent a property?
Typically Lettings Agents and Landlords look for the same thing, a good quality tenant who will look after their property for the long term. Here’s a couple ideas:
- Offer to rent the property for a longer period, landlords prefer having a tenant who’s going to look after the place – also they’ll pay less new tenant find fees, so it’s better for their back pocket.
- Make sure you’ve a good credit score, or improve it. Websites like CreditLadder track payments being made monthly for rent and reports to Experian, Equifax and Transunion. Paying bills on time and using a credit card (paying it off every month) again improves credit ratings. Head over to Clearscore for a credit rating and suggestions to improve.
- Have good references available from your existing landlord, ie paying rent on time, looking after the property, etc.
- Offer a guarantor – so if you are unable to pay, someone else can.
By using the tips above, tenants can make themselves attractive to landlords and lettings agents – thus becoming pick of the crop when viewing.
