Private sector rents not enough to boost supply

Report on 'Investing in the Private Rented Sector: Landlord Returns, Taxation and the Future of the Private Rented Sector.'

Related topics:  Specialist Lending
Millie Dyson
23rd November 2011
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A report on the private rented sector warns that current returns for landlords are very low once costs and inflation are taken into account, despite headline reports of rising rents.

This is restricting the amount of new accommodation available to meet increasing demand, report the Residential Landlords Association.

Prepared by Michael Ball, Professor of Urban and Property Economics at the University of Reading, the Report highlights that rents remain significantly below their early 2008 levels, when adjusted for inflation.

The Report used a new economic model fed with financial data from over 200 landlords.

Following a survey of landlords' costs and returns, the Report found that present rent levels do not cover landlords' expenses when all factors are taking into account, including refurbishment and borrowing costs, agents' and legal fees, voids and arrears, energy and safety certificates, repairs, depreciation and regulatory compliance.

Additionally the tax burden on the private rented sector is much more than on other types of tenure, averaging £1,000 a dwelling.

Sharp real falls in the value of their properties over the past four years have pushed total annual returns for many landlords into negative territory.

Currently, almost 90% of English landlords are private individuals and couples and many residential investors would have been better-off if they had invested their money elsewhere.

The Report warns that the consequences for tenants will be “grim” as they face increasing rents and a chronic shortage of properties. Economic recovery will also be significantly held back by a lack of affordable rental housing.

It calls for Government reforms to the taxation and regulatory treatment of the sector to alleviate pressures on rents.

Commenting ahead of the formal launch of his Report at the House of Commons at a meeting of the All Party Parliamentary Group for the Private Rented Sector, Professor Ball said:

“There is much hype about the private rented sector at present, but the reality is that landlord returns are generally poor and with a weak economy are likely to stay that way.

"Investment in the past was driven by rising house prices, now there is a need to rethink taxation and regulation so that rental returns come to the fore at rent levels that are affordable for tenants.”

Alan Ward, Chairman of the Residential Landlords Association commented:

“Professor Ball's report demonstrates clearly that the private rented sector is taken for granted - the returns are only superficially rewarding because few landlords account for the cost of regulation and taxation.

Only the lack of an alternative secure investment, and the curse of capital gains tax, prevents many landlords from dis-investing just when more people need private renting because of lack of access to the owner occupied and social rented sectors.”
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