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Briefing
Housing
Cost of living

Is the private rented sector shrinking?

Recent market fluctuations and higher interest rates are leading some amateur landlords to sell up. This could offer a chance for better-off renters to be first-time buyers, but the lowest income renters are those most likely to lose out unless policy responds.

Policy and regulation of the PRS is still yet to catch up with this more diverse profile of residents, and particularly the rise in families with dependent children, for whom insecurity and frequent moves are especially damaging. 

Shrinking social housing has led to more private rent low-income households

Our analysis of Department for Work and Pensions (DWP) data shows that while the shift from social renting to private renting over the last 20 years has been greatest for renters with mid-to-higher incomes, there has been an increasing dependence on the PRS across all income percentiles. This has inevitably led to an increase in spending on housing benefits to support low-income households in the PRS.

Despite this, the Assured Shorthold Tenancy agreement that most private renters sign allows landlords to terminate the tenancy almost at will, which makes renters reluctant to complain about poor conditions or resist rent rises. Consequently, private renting is both the most expensive tenure and the one with the worst housing conditions (MHCLG, 2024).

The previous government ultimately failed to pass its long-promised Renters (Reform) Bill, despite removing its headline measure of ending ‘no fault’ evictions following objections from Conservative backbenchers and landlords. The new Labour Government announced a Renters’ Rights Bill in the King’s Speech in July 2024, establishing long-overdue regulation of the PRS as an early priority. As our Reboot report called for last year, it is essential that Section 21 ‘no fault’ evictions are banned and that renters are empowered to raise concerns about standards in the PRS without fear of eviction (Lloyd et al., 2023). Further action is also needed to tackle worsening affordability and poor conditions in the PRS, this is explored below.

A lack of data hampers our understanding of the PRS

While there have been improvements in recent years, there are still significant gaps in what we know and that limits our ability to appropriately target policies and interventions. These gaps in our knowledge have also enabled less scrupulous commentators to step into the gap with misleading or incorrect analysis. There have been some improvements, with institutions now publishing local authority level rental indices (ONS, 2024) and a snapshot of the BTL rental market (UK Finance, 2024), but there are still significant gaps. We welcome the new research project from Nationwide Foundation and Dr Julie Rugg that will help identify these gaps and how addressing them could lead to change in the sector.

Unaffordability is growing

Poor quality data is also hampering our understanding of the true impact of spiralling rents on affordability. The English Housing Survey (EHS) shows that, on average, private renters spend 33% of their household income on rents, but data from Dataloft, based on actual tenancies and published by the Office for National Statistics (ONS), puts the figure around 27% for a similar time frame. This is still significantly higher than the 22% or so now being spent on mortgage repayments by recent first-time buyers, but raises questions about actual levels of affordability in the sector. 

Part of the answer to this question lies in understanding the diverse profile of today’s PRS. Data from 2021/22 EHS shows that private rented households headed by someone in full-time employment (two-thirds of all private rented households) spent 25% of their income on rent, similar to the Dataloft data from actual tenancies. However, the EHS figures for other households are more concerning. Privately renting households headed by someone in part-time work spend on average 39% of their income on rent, while those in full-time education spend over 80%. It is likely that a significant proportion of students can afford their rent thanks to sources other than their own income such as parents. This is one of the reasons why comparing the income profiles of residents to the cost of rent can be misleading for understanding affordability.

Above all, low-income households now face acute affordability challenges (measured by the average share of income spent on private rents). For example, EHS data shows that the proportion of privately renting households in the bottom 40% of gross incomes was 41% across England, ranging from 24% in London to 60% in North West England. Though the proportion of privately renting households in the bottom 40% of incomes was lowest in London, 88% of all private renters in the capital were also paying more than 30% of their income on rent – so that 21% of London households in the PRS were both on the lowest incomes and experiencing stretched affordability. Meanwhile, just over half of low-income renting households in North West England were spending over 30% on rent, so that in total 34% of households renting privately in Manchester had both low incomes and stretched rental affordability. The Joseph Rowntree Foundation’s (JRF's) cost of living survey finds that 89% of the privately renting households in England who are also in the bottom 2 income quintiles are spending more than 30% of net income on rent (Johnson-Hunter and Earwaker, 2024).

The high-rent burden for low-income households partly reflects the challenges of measuring affordability for those using government support; the housing element of Universal Credit may make up a large share of a household’s total entitlement, particularly in parts of the country where rents are highest. But it also reflects the diminishing share of housing costs the benefits system covers over time, as benefits have failed to keep up with the real costs of private renting (Mulheirn et al., 2023).

Government support for renters has been inadequate

There has been a growing disconnect between actual market rents and the support offered to low-income households through the LHA. In April 2024, the previous government raised LHA rates compared to the April 2020 levels at which they had been frozen. However, these new rates were based on rents in the 12 months up to September 2023. Our analysis of local reference rents from September 2023 to April 2024 shows most markets have seen significant further rental growth since this time, creating a new disconnect between rents and support. In other words, despite the recent increase, LHA rates have still not caught up with spiralling private rents, and low-income private renters continue to struggle to afford basic living costs. Without action from the new government to keep LHA rates pegged to market rents, it is likely that the gap between the rents landlords charge and what low-income households can pay will continue to grow rapidly.

JRF has long campaigned for all political parties to commit to reliably uprating benefits in line with inflation, and to ensuring that benefits provide a minimum level of support for households to afford the essentials in life (Schmuecker, 2024). Despite an ongoing cost of living crisis, the previous government’s Household Support Fund is due to end in September 2024. While welcome, this fund was always too short-term and too small-scale to tackle poverty effectively. As an emergency measure, the current scheme should be extended by up to a year while a new approach to hardship payments and support is developed. This should combine the Household Support Fund with Discretionary Housing Payments to create a single, longer-term, more flexible fund.

For over a decade, low-income households have faced a permanent cliff edge in the support they can get to cover housing and basic living costs. Long-term certainty on how the benefits system will support households is now essential to avoid a further decline in affordability for low-income private renters (Schmuecker, 2024). This must include a guarantee that LHA will be rebased to market rents as a permanent feature of benefits uprating. As we argued in Reboot, the alternative is that households using benefits to help pay rents in the private sector will be progressively squeezed out of the mainstream housing system almost everywhere, increasing financial distress and homelessness – and ultimately leading to higher costs and worse outcomes from housing more people in temporary accommodation (TA) (Lloyd et al., 2023).

A sell-off by landlords – or professionalisation?

The drivers on the demand side of the rental market are relatively well understood, but what has been happening on the supply side is still uncertain. There have been regular media reports that landlords are selling off their portfolios, but until recently the evidence was mostly limited to surveys of landlord intentions. Analysis from Hamptons suggests there have indeed been more landlord sales than purchases since 2016, though this trend will be more representative of smaller landlords and less likely to pick up the growth in the build-to-rent sector. Industry experts estimate that around 200,000 new build-to-rent homes have entered the market over the same period, offsetting most but not all of the exits by smaller landlords. Taken together, these 2 trends suggest that there has been a consolidation in the sector in recent years, with fewer small landlords but a similar overall number of homes. However, build-to-rent has so far tended to target renters with higher incomes, potentially putting further pressure on affordability as lower-rent homes are replaced by more expensive ones in some markets (LSH, 2024).

Further evidence of a consolidation is provided by data from the Scottish Landlord Register. Their data shows that the number of landlords and properties registered did peak in 2016 and 2017 respectively, but the fall in landlord numbers has been greater, down 11.4% compared to 3.8% for properties. More recently, the number of registered properties has started increasing again but landlord numbers remain relatively flat.

Across the UK, there are now clear signs that more rental homes are being sold off as landlords react to the changing economic and regulatory environment. The number of outstanding BTL mortgages has fallen by around 3.4% since late 2022. Meanwhile, Bank of England analysis ‘indicates modest shrinkage [in the PRS] on aggregate and across UK regions and property sizes’ (BoE, 2023).

Worryingly, the effects of landlord exits are hitting low-income renters harder. Analysis found there was ‘an increase in rented homes being sold and many of these are lower priced flats’ (BuiltPlace, 2023). Given the failure of LHA payments to keep up with current rents, these shifts in the make-up of the PRS are likely to be contributing to increasing pressures in England’s homelessness system, which cost councils £1.7bn in 2022/23, up 62% since 2017/18 (Shelter, 2023).

Growing affordability pressures in the PRS may also reflect landlords’ changing priorities and their investment strategies in recent years. With lower house price growth, higher interest rates and tighter regulation, some landlords (who are also increasingly retired) have shifted their focus from capital growth to income generation. While this should be a welcome sign of the private rental market maturing and even professionalising, the current unique conditions in the market mean there are also negative side effects. Where once a fear of voids (and therefore a lack of rental income to pay the mortgage) may have held landlords back from pushing rents too high, the competitiveness of the current rental market has given them the opportunity to shift their focus to maximising their income returns, without the risk of leaving their property empty for long. In this context the need for higher regulatory standards is even more pronounced, as landlords currently face weaker incentives to voluntarily improve standards. Labour’s Renters Rights Bill will include welcome measures to apply a new Decent Homes Standard and extend ‘Awaab’s Law’ to the PRS.

The PRS has seen lower turnover in recent years

While the overall size of the PRS has fallen slightly, the post-pandemic market has seen much larger falls in the number of homes available to rent. For example, Rightmove reported that ‘the number of available rental properties is 11% higher than last year, but 26% below 2019’ and estimated that ‘nearly 50,000 rental properties are needed to bring the supply of rental homes back to pre-pandemic levels’ (Rightmove, 2024). One factor that might contribute to this lack of supply is an increase in tenants staying in their homes for longer. The PRS is historically a high turnover market, with around one-third of households resident for a year or less. Anecdotal evidence suggests that tenancy lengths have been increasing, as many tenants have chosen to stick with their existing home, for a higher rent, rather than risk competing for the limited numbers of new lets available.

Squeezed at the top and bottom

Adding to the shortfall in supply, landlords in some markets have increasingly shifted to the short-term lettings market, contributing to the fall in homes available to rent longer-term (Propertymark, 2022). Meanwhile, some landlords at the lower end of the market have shifted their focus from the private rental market to offering TA at much higher rents – reflecting the recent rises in number of people in TA (Hackett and Farrelly, 2022). The Department for Levelling Up, Housing and Communities (DLUHC) data shows that as of September 2023 there were 109,000 households (including 142,490 children) living in TA, up 3.0% from the previous quarter and up 10.3% from the same time last year (DLUHC, 2024). As JRF argued in a recent report, a targeted programme of acquisitions of homes from the market in places with high demand for TA could ease these pressures, improving outcomes for homeless households and driving down costs for councils (Baxter and Elliott, 2024). 

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