What makes a place a good bet for Buy to Let, and how does Oxford stack-up?

Since the millennium, the proportion of households renting privately has grown from 10% to 19%.  But which towns and cities should investors look to for high levels of rental demand and future rental growth? Which demographic and economic indicators are best at predicting performance? 

The Dataloft PRS Squared Index monitors key indicators for 50 towns and cities across the UK to help predict performance and identifies four key indicators:

1.     A strong local economy is best judged through local earnings and job growth. The airport towns of Luton and Crawley (for Gatwick) have seen the strongest earnings growth over the last few years.  In Oxford, Kidlington is performing well reflecting the investment in Oxford Parkway station.

2.     Nurturing new businesses can be judged in multiple ways, for example Cambridge, Aberdeen and Aldershot are top of the league for new patents per head of the population. Oxford ranks fifth in UK for gross value-add (GVA) with its top 100 employers accounting for 60% of employment.

3.     Demographic growth data tells us a lot about the scale and strength of the rental market. Is the population growing? How about the number of young professionals, the Holy Grail for rental demand?  University towns do well on this measure, particularly those with strong research facilities that hold onto students well beyond graduation. Cambridge and Oxford rank highest for locations with a young demographic (aged 20 to 44 years), with 32% of Oxford’s population being aged between 18 and 39 yrs.

4.     Affordability is another crunch factor for rental demand. In places where house prices are particularly high relative to earnings, more people will stay longer in the rental market. London is our nation’s primary example of overstretched affordability, but Oxford rivals London, taking over 50% of household gross earnings to meet mortgage payments for the average house price.  At present some 30% of the population live in rented accommodation

Dataloft has devised a 4-part framework for assessing and weighting the complex web of factors that affect rental demand. Oxford performs strongly vs each criteria, confirming Oxford’s long-term attractiveness for landlord investment.  However, the continued strong property price growth and some reduced growth in rents means that rental yields can take time to build, meaning that savvy landlords carefully plan their investments prior to targeting investments to achieve their financial objectives.