Data shows that government policies that disincentivise landlords hurt renters
The 1990s saw a boom of private landlords, with low cost finance encouraging two million Brits to buy properties to earn rental income from leting them out.
Investors all over the country bought, improved and let out properties to build an income stream to boost their income or plan for retirement.
In the mid 2010s though the tables started to turn. Armed with the idea that too many property investors were causing a shortage of houses for first-time buyers, then-Chancellor George Osborne started to introduce measures to slow the growth of the private rental sector.
Most notably, 'Section 24' removed the ability for landlords to fully deduct mortgage interest from their rental income for tax purposes. The aim was to reduce demand from buy-to-let landlords and help first time buyers get on the property ladder.
Similar policies have continued, with new plans to scrap no-fault evictions, making it harder for landlords to get rid of a tenant without going to court.
Viewed simplistically, these policies have been successful. Many landlords have lost confidence in the rental market, with one in 10 set to quit altogether this year, according to Benham and Reeves, and others shrinking their portfolios or cancelling new purchases. All of which frees up property stock for first time buyers.
The problem of course is that this is only half the story. Increasing supply for homebuyers means decreasing supply in the rental market, as those properties are no longer available for let.
And the private rental sector is actually considerably smaller than the homebuyers' pool already. According to our latest data at PropertyData, there are 4.6 million properties in the rental sector in England, but 15.6 million dwellings in the homebuyer pool.
That means if anti-landlord policies cause just 200,000 properties to leave the private rental sector, that's a 4.3% drop in the number of properties available for tenants, with just a 1.3% increase in the number of properties available for buyers. The efects are disproportionate by a factor of more than three.
That's why average rents are rising fast and reaching record levels – our data shows average levels have passed £1,200 for the first time. There is fierce competition among tenants chasing a limited number of homes available.
Asking rents for new tenants have risen for 52 months in a row, and agents have to deal with huge volumes of tenant enquiries for every property that they let.
In a tight market, tenants with an existing tenancy delay or cancel moving, because they are worried they won't find a new property. The whole market slows down, damaging the labour market flexibility our economy needs.
High rents also make it harder for tenants to save up a deposit, possibly undoing some of the gains made by first-time buyers.
So what should the government do? Instead of discouraging investors and developers, they should encourage them, particularly the 'long tail' of smaller investors and developers who in aggregate are a powerful force to expand and modernise our ageing property stock.
The government should encourage investors to professionalise the way they operate. If all investors and developers used tools like PropertyData to research areas with the highest tenant demand, source opportunities, and develop new housing units, within a few short years we could help set the housing market in a beter direction.
