London is undergoing a fundamental shift in residential property ownership, that will see a clear switch to majority renting. Ten years from now, 60% of Londoners will be renting, compared with just 40% in 2000.
The seismic change has been tracked by consultants PwC, in a new study that draws together previous work on the growth of private renting, and official figures on economic outlook and housing supply.
“This analysis shows that people are increasingly being locked out of owning a home in London, demonstrated by the sharp rise in private rental levels and sharp fall in home ownership,” said PxC senior economist Richard Snook.
“High prices are making homes in the capital unaffordable to most and could undo a century long trend towards rising home ownership rates – in just 25 years the city has been transformed to one where rental is becoming the norm – especially for younger people.”
PwC has drawn together national statistics covering owner occupation in 2000, 2014 and estimates for 2025. These show nationally that home ownership will move from 69% to 61.5% in 2014, and down a little more to 59.5% in 2025. Private renting has already grown from 9.4% to 19.9% and will expand further to 23.9%.
In London, however, the change is substantially more marked. Ownership of 58.7% in 2000 has already dropped to 45.9% by 2014, and is set to reduce to 39.5% by 2025. Private renting, in contrast, has already grown from 15.2% in 2000 to 29.5% and will increase to 39.5% of the market by 2025.
The numbers also draw attention to the relative declining importance of the social rented sector.
“With around 60% of Londoners predicted to be renting by 2025 (40% private sector/20% social housing), policy will need to adapt,” warned PwC partner David Snell. “This could include encouraging a better quality of private rented accommodation including longer tenure periods, and more rental properties designed for families.”
“Demand for housing in the UK has outstripped supply for more than two decades. Changing the outlook for generation rent will require us to build more houses than needed just to match population growth in order to make up the past shortfall between housing supply and growth in demand.”
The news comes as analysts predict a shift in the provision of private rental homes. Buy to let landlords, particularly those with small scale portfolios, are weighing up the loss of mortgage interest tax relief, a recent government change that will reduce returns. Some agents are predicting the new regime, which will restrict the ability of small landlords to offset mortgage interest costs, will lead to a substantial reduction in new purchases, and could force a good number of small-time investors to sell up their properties. Others suggest private sector rents will rise to cover the additional costs such investors will face.
Growing numbers of institutional investors and specialist private rented sector (PRS) landlords are now coming into the space, building specifically for long term rental. With branded products, and add-on services for renters, they are promising to overturn the sector’s reputation for poor service, with innovations including flexible and longer term rental contracts.
The gradual reduction in social rented housing also looks set to continue. Housing associations have been spooked by recent attempts to restrict rents, and are facing reductions in government grant support, with the result that some are threatening to cut the construction of new social rented homes.
LPA Perspective: While we must always beware of estimates and predictions, this report points to a clear direction of travel, which currently there appears to be no way of changing. Housing delivery remains short of demand, prices will continue to rise – and fewer locals will be able to afford to buy.
This makes for some fundamental changes in the way homes are delivered, and also in the way residents feel about their neighbourhoods.
The new flats, designed and built specifically for rent, are being delivered by new organisations, and by existing corporations such as housing associations which are trying to reinvent themselves. They are drawing on US models of rental housing, which should provide attractive homes with better levels of customer service. Renters at the former Olympic Village in Stratford, for example, can expect a defective washing machine in their kitchen to be either fixed, or else replaced the same day, while they are out at work.
But with fewer homeowners, there is bound to be a shift in attitudes towards local services, and development in a neighbourhood. Renters are typically less inclined to get attached to their immediate surroundings, at least until they have children of school age. Even so, their reaction to changes in their area may simply be to up sticks and move, rather than fight for their locality, as longstanding residents will do more readily.
In planning terms, there is likely to be increased friction between planners and those delivering rented housing. Already, the new PRS developers see younger renters happy to trade a central London location for flat size, being happy with a studio – something that brings them directly into conflict with the GLA’s policies over minimum home size. But as a pragmatic response to the market, and ever rising prices, why not?