Private rented homes – the key to avoiding a full-blown Oxford housing crisis.

Everyone has an opinion about what’s wrong with the private rented sector (PRS)…some have informed opinions, others seem ill-informed.  Few take time to consider the role played by PRS in the wider property market.  How important is the PRS to the UK housing market?

In 2003, according to data from Shelter, the PRS was 2.55m homes or 11.9% of total UK housing.  By 2014 it had grown to 4.59m or 19.7% of the total UK housing market.  To put that into perspective in 2014 total new building created 112,400 homes or less than half the annual growth of the PRS.  In 2014, the PRS provided 14% more homes than social housing owned by local authorities and housing associations combined!

This goes to show that the PRS is a massively important source of housing supply.  By early 2015 the UK had 5.4m households who relied on the PRS, and according to PwC that is set to rise to a massive 7.2m by 2025 – an increase of one-third. In 2014, 2m private landlords owned and let 4.6m homes.  Based on the same ratio of ownership, an additional 783,000 landlords are needed by 2025 if the demand forecast by PwC is to be serviced effectively.

In 2014, the UK’s private landlords banked £14.2bn.  With demand set to increase by one-third, it is no coincidence that the Exchequer has imposed a stamp duty surcharge on 2^nd homes.

The stats show that our ‘beloved’ politicians are right to want to ingratiate themselves with tenants – they are a large block of voters and one that is growing rapidly in number.  But, the nation needs new and existing landlords to keep investing, or there will be a genuine housing crisis that the public sector has no hope of addressing.  Tenants will not thank politicians for undermining the supply of affordable good quality rental properties.

How does Oxford compare to these national statistics?

In Oxford, according to the 2011 census the PRS accounts for 28% of the total housing stock.  If student households are stripped-out, the PRS still accounts for 26%, meaning it is more significant in our City than is the case nationally.  In Oxford, just 47% of households own their own home vs. a national average of 63% and 21% live in social rented housing vs 18% nationally. 

These statistics are not a surprise in one of the countries least affordable cities.  New build supply is historically weak in Oxford and is a major constraint for both first-time buyers and down-sizers increasing demand for rented homes, and locking-up the housing market respectively.  Over the 4 years to 2015 less than 1,000 net new homes were added to the city an average of just 247 homes per annum or less than 1% per annum. 

Even if this changes materially, the PRS remains strategically important to the City.  Between the census years of 2001 and 2011, the PRS grew by 45% dwarfing the growth of other forms of tenure.  Without a massive increase in new supply, demand pressures will continue to grow making a stable, high-quality PRS critical to avoid a full-blown housing crisis in Oxford.

It appears to me as if Oxford City Council recognises this picture and is focussed on improving standards through licencing of shared houses, and by encouraging landlords and their agents to raise standards.  Inevitably this is increasing costs, but it is a positive, productive policy that raises standards across the City and one which most landlords will respond to positively.

Why is it that Parliament seems to have it in for landlords?

I can understand why the Government and the Bank of England are concerned to ensure mortgage debt remains affordable as interest rates rise to long-term trend norms.  New mortgage lending rules for buy to let are sensible, and make the whole sector more resilient.

However, other changes seem poorly considered and motivated by pure politics rather than any genuine appreciation of the Housing market and the importance of a stable PRS over the years to come.  Too many landlords feel that they are being demonised, and are choosing to stop future investment with others simply divesting altogether.  In some parts of the country the PRS is shrinking at the very time it needs to grow to buy time for a massive expansion of new building.

The political shift towards populism is in danger of disrupting this strategically important sector of the UK’s housing market.  Politicians need to recognise that anti-landlord policy has gone too far.  By all means, rid the sector of rogue landlords, work with professional agents and landlords to raise standards, make client money protection mandatory, make private rented homes safer and encourage higher environmental standards.  But, it is time to stop discouraging new investment and increasing landlord taxes. The vast majority of landlords provide good-quality homes which are badly needed as demand continues to grow.