I have come across numerous reports in the media lately discussing a widespread phenomenon referred to as a mass landlord exodus.
According to these narratives, landlords are rapidly leaving the market due to either the challenging nature of the business or the lack of sufficient financial rewards. The recently introduced Renters Reform Bill is expected to further intensify this narrative.
However, when it comes to obtaining definitive data regarding the private rented sector (PRS), it is difficult to find a clear-cut picture. Based on our observations at Paragon, particularly among our primary customer base of portfolio landlords, we have not found substantiated evidence supporting the notion of an exodus.
In my view, the debate surrounding whether landlords are selling properties or not is diverting attention from the larger and undeniable issue of demand significantly surpassing supply. Even if the current supply levels are maintained, there remains an insufficient amount of rental properties available.
According to the latest Zoopla report, tenant demand is 51% higher than the average of the past five years, while the supply is 33% lower than the same average. Our own research on landlords confirms that tenant demand continues to reach record highs every quarter.
Several factors contribute to this complex issue. Tenants are staying in their current homes for longer periods, resulting in a lack of stock returning to the rental sector. The substantial increase in house prices since the beginning of the pandemic has made it even more difficult for individuals to enter the property market, compounded by higher mortgage costs following the unfavorable mini-budget.
Furthermore, there are broader societal changes at play. The population is growing, but we are not constructing houses rapidly enough to keep up with the pace. The formation of new households is driven by older single-person households, who are more inclined to rent. Additionally, people are renting for extended durations, with the number of individuals aged between 45 and 64 residing in rented homes having doubled over the past year.
I am convinced that the sales made by landlords are contributing to the issue at hand, but I am skeptical of the notion of a significant exodus.
Over the past decade, we have witnessed a shift from smaller-scale landlords to larger operators. It is plausible that those landlords who own just one or two properties are more likely to consider selling, especially in an environment with higher interest rates and increased regulation due to the Renters Reform Bill. Additionally, there is a growing number of older landlords who are looking to retire.
However, portfolio landlords, who possess the majority of properties in the private rented sector (PRS), can be seen as small and medium-sized enterprises (SMEs). They operate their rental properties as limited companies and treat them as a business. Often, they have employed staff and maintain clear, long-term strategies for their enterprise. Consequently, they are unlikely to sell their properties solely due to more challenging market conditions.
While I do not believe there is a widespread exodus among landlords, I strongly advocate for government intervention to ensure the continued commitment of existing landlords to the sector, while simultaneously attracting new investments from the next generation of landlords.
Undoubtedly, being a landlord today presents more challenges compared to the early days of the buy-to-let market nearly three decades ago. The implementation of George Osborne’s 3% Stamp Duty surcharge and the removal of mortgage interest relief effectively achieved their intended purpose of slowing down the market.
The introduction of layered regulations has significantly increased the complexity of managing rental properties. The impending Renters Reform Bill and forthcoming energy-efficiency changes will only add to this complexity.
Furthermore, landlords unfairly endure a negative reputation, fueled by media coverage and political statements that often focus on the negative aspects of the sector, overshadowing the commendable work carried out by the vast majority who provide quality housing at fair prices.
There is a competitive landscape for capital, and individuals with available funds may find other investment options more appealing at present. After all, a savings account won’t disturb you at 2 a.m. complaining about a broken boiler.
Fortunately, there are positive indications of fresh investments flowing into the private rented sector (PRS). According to figures from UK Finance, last year saw over 100,000 buy-to-let mortgaged property purchases, with the average age of such landlords being 43.
However, the PRS is already experiencing significant strain and cannot afford to diminish in size. This necessitates a fiscal policy from the government that does not penalize property investment but rather encourages it.
Creating a stable and balanced regulatory framework is crucial, alongside acknowledging the role of landlords in providing homes for one in five individuals in the population. We will continue to emphasize these points to the government.
* Richard Rowntree is Managing Director for Mortgages, Paragon Bank *
