Oxford Buy-To-Let Predictions up to 2037

On several occasions over the last few months, in my Oxford Property Blog, I have touched on the fact that the rate of rental inflation (i.e. how much rents are rising by) has eased over the last year. At the same time I flagged that in some parts of the UK rents had actually dropped for the first time in over eight years. Research backs up this prediction.

Rents in Oxford for new tenancies fell by 0.4% in the last 12 months (i.e. not existing tenancies). When we compare that current rate with the historical rental inflation in Oxford, an interesting pattern emerges:

·       2016 - Rental Inflation in Oxford was 5.1%

·       2015 - Rental Inflation in Oxford was 9.4%

·       2014 - Rental Inflation in Oxford was 3.2%

The reason behind this change depends on which side of the demand/supply equation you are looking from. On the demand side (from the tenants point of view) there is the uncertainty of Brexit and the fact that salaries are not keeping up with inflation for the first time in three years. Critically this means tenants have less disposable income to pay their rent. As an aside, it is interesting to note that nationally, rent accounts for 29% of a tenant’s take home pay (Denton House).

On the supply side of the equation (landlords point of view) Brexit also creates uncertainty. However, the biggest issue was a massive upsurge of new rental properties coming on to the market in late 2016, caused by George Osborne’s new 3% stamp duty tax for landlords in the first part of 2016. This meant a lot of new rental properties were ‘dropped’ on to the rental market all at the same time as landlords scrabbled to buy before the new tax was introduced. The greater choice of rental properties for tenants curtailed rental growth/inflation. A slight softening of Oxford property prices has compounded this.  Figures from The Bank of England suggested that first time buyers rose over the last 12 months as some were more inclined to buy instead of rent. Together, these factors played a part in the ongoing moderation of rental growth.

The lead up to the General Election in May didn’t help: after all, people don’t like doubt and uncertainty. So now that the government has a mandate for going forward over the next 5 years hopefully that has removed any stumbling blocks stopping tenants making the decision to move home. Although, it hardly feels like a 5-year government!

Whether it be ‘hard’ or ‘soft’ Brexit (and with the Election result the Tory’s might have to be ‘softer’ on those negotiations) the simple fact is, we aren’t building enough properties for us to live in. Both in Oxford, the South East and the wider UK, long-term population trends imply that rents will soon be growing faster than inflation again. Look at the projections by the Office of National Statistics.

Population Estimates for Oxford City Council over the next 20 years
2016 (actual)	2021	2026	2031	2036
161,870	166,412	171,231	176,689	180,045

Tenants will still require a vibrant and growing rental sector to deliver them housing options in a timely manner. As the population grows in Oxford, and further afield, any restriction to the supply of rental properties (brought about by poor returns for landlords) cannot be in the long-term best interest of tenants. Simply put rents must go up!

I see this as a short-term blip and rents will continue to grow in the coming years. With rents only accounting for 29% of a tenants’ disposable income, the ability for most tenants to absorb a rent increase does exist.