Rental crisis to worsen in the next decade, says UK’s biggest landlord
Ongoing supply constraints are set to worsen the UK’s rental crisis in the coming years, according to the country’s biggest landlord.
Grainger said it expected rental demand to grow 20 per cent from its 2021 level by 2031, far above growth in housing supply.
“The private rental market in the UK faces growing demand [and] severe supply constraints,” the company said it its half-year results.
Grainger operates over 9,100 rental properties throughout England and Wales, as well as £3bn of residential assets in the UK and Germany.
While rental inflation has slowed from its double-digit high in 2023, there are still 12 people chasing every home for rent, according to Zoopla.
That figure is down 42 per cent on 2022-24 levels but still higher than it was before the pandemic.
Affordability has increasingly become an issue post-pandemic, too, due to a combination of tight supply and higher costs for landlords as interest rates remain high and tax relief for rental income falls away.
The annual cost of UK rents increased by £3,000 a year in March, to £15,400 on average, rents are predicted to increase by three to four per cent over 2025.
Policy reforms to constrain supply
Supply of new homes for rent has been hemmed by a lack of building and an exodus of landlords from the sector due to a decade of unintended consequences from policy reforms – rental stock levels have been static at around 5.5m since 2016.
The Renters’ Rights Bill, which will come into force later this year, will further increase the complexity and cost associated with being a landlord – particularly a private one.
More stringent energy requirements, too, mean landlords will either have to invest thousands in upgrading their properties or sell up.
“[Proposals in the bill] continue to cause widespread concern as to the viability of landlords continuing to operate within the private rented sector,” Nathan Emerson, CEO of Propertymark, said.
“Reports show that 88 per cent of landlords have no confidence in the current private rental sector due primarily to the Bill itself and more than a third plan to leave the sector altogether this year,” he added.
Grainger pointed out that while the bill will “professionalise the rental market and raise standards”, smaller landlords will “find the new regime challenging and will therefore accelerate their exit from the market, further constraining supply”.
Is build-to-rent a solution?
Growth in build-to-rent, a name for purpose built, institutionally owned and professionally managed residential blocks of flats, has been cited as a way to ease pressure.
Build-to-rent currently only represents 2.3 per cent of the total rental market and enjoys significant political support.
The government already encourages the market through the National Planning Policy Framework (NPPF) and the London Plan, and has promoted public-private partnerships to facilitate development.
Grainger, too, voiced its support for build-to-rent, with £1.3bn and 4,565 homes in its pipeline.
“The need for rental homes is well-identified, but very few local planning authorities yet have dedicated build-to-rent policies,” Ian Fletcher, director of policy at the British Property Federation, said.
“There is a huge amount of investment interested in helping fund the chronic undersupply of new rental homes,” Fletcher added.
In February, the British Property Federation created a build-to-rent taskforce aiming to support growth in sector across the UK.
It includes representatives from the British Property Federation (BPF), the Association for Rental Living, and leading developers, operators, advisers, and investors.
Brendan Geraghty, CEO of the Association for Rental Living, said: “It is critically important to raise awareness of Build to Rent’s potential to deliver homes and attract investment, to take this message to national and local government and create an environment that unlocks the potential for much needed new homes.”
Savills, however, has warned that the sector needs a staggering £300bn to meet future levels of demand.
But, Savills’ head of national investment and single family, Piers de Winton, said it was clear the market has “significant growth potential” as it “emerges as a mainstream investment”.