13 Aug 2014

Are We Creating A Generation Of Renters?

Are We Creating A Generation Of Renters?

Adrian Sangster, Leasing Manager, provides insight to the continuing growth of the private rented sector at the expense of home ownership.

Adrian Sangster, Leasing Manager, provides insight to the continuing growth of the private rented sector at the expense of home ownership.

It has been well documented that the Bank of England Governor, Mark Carney, views the housing market as being the ”biggest threat” to the overall recovery of the UK.

Possibly as a result of his comments in May, where he warned about the risk of another big debt overhang, the housing market in some areas has shown signs of coming off the boil a little.  There is no doubt that when the Monetary Policy Committee last met, some time would have been spent debating whether this was the start of a slowdown or just a temporary blip.  They, like myself, will be hoping it is the latter because the last thing the housing market needs is for the chronic lack of supply to continue for much longer.  

Ask most people who are hoping to buy their first home, how they’re finding the market and they will probably respond by saying that they fear it’s becoming more unaffordable with demand outstripping supply, which in turn is driving prices higher.  This, coupled with the changes from the recent Mortgage Market Review (MMR), leaves many people fearing that they will never become homeowners.

Housing affordability has been cited as the most probable driving force for deep social changes which appear to becoming entrenched. Example being more young adults living with their parents, people starting families later, more young workers sharing homes and a sharp rise in people renting.  Against this backdrop, home ownership is falling, and for younger generations it is becoming increasingly out of reach.  This trend is supported by a recent Institute for Fiscal Studies Report which found that the proportion of 25 year olds buying their own home having halved in 20 years and those renting had doubled.

There are people for whom renting is a lifestyle choice and from a labour mobility perspective, such flexible living arrangements can be helpful to them and their employers.  Sadly, many people are renting through necessity rather than choice and as a result private renting is on the rise.  

Recent surveys by the UK Government and campaign group ‘Generation Rent’ have shown that in 2012-13, the number of households in the private rented sector had overtaken the number in social housing for the first time. And those renting were least happy with that choice with just over half of private renters agreeing that it was a good way of occupying a home, compared with 82% of social renters and 93% of owner-occupiers.  Two-thirds of private renters said the main reason they rented was because they could not afford to buy and that their prospects of ‘scraping together’ a deposit were slim. 

However, the limited wage growth of recent years has not just made buying less affordable but renting too (with a lack of private rental stock driving rents up).  Both surveys also found that on average a tenant spent 40% of their income on rent, while owner-occupiers spent just 20% on mortgages.  This means that tenants can find themselves trapped in a vicious circle of wanting to buy but being unable to build a deposit because they’re spending the majority of their income on rent.  

If this trend continues there is a real prospect that we will create a generation of people where private renting will be the norm and owner-occupiers becoming the privilege of the lucky few who have the resources to be able to keep pace with soaring house values.  In effect matching the German model where private rented is viewed more favourably and accounting for 58% of the country’s housing stock.  

Ultimately, politicians will have to get to grips with this country’s lack of housing supply. As long as it falls so far behind demand, the barriers between the haves and have-nots in the housing market will continue.  For those who want to, renting can be a financially sensible and happy choice.  However with housing supply short for both rented and owned homes, the opportunities of those who want to buy, will become more restrictive which may see the governors fears realised.

Adrian Sangster, Leasing Manager

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