The Private Rented Sector - a delicate ecosystem

Introduction

This blog post looks at the most recently published government data on the size of the PRS and places this in context of longer-term trends. 
The post also looks at latest trends in the composition of households and identifies a mismatch between the two.

Please note this piece focuses on England – it draws on data collected from the English Housing Survey – published by the Ministry for Housing, Communities and Local Government (as well as the department’s forerunners). The NRLA has long been an advocate and campaigner for a Wales equivalent.

Size of the PRS

During the summer, the government published new figures from the English Housing Survey.

Data on the number of dwellings in the PRS is shown below. Note that researchers collect this data through a combination of face-to-face visits and telephone calls. During the Covid-19 period, visits were not possible, hence the absence of data on vacant properties in 2020 and 2021.

The chart highlights a slowdown in the growth of properties in the PRS. Between 2016 – which at the time represented something of a “high water mark” for the sector in terms of dwelling capacity - and 2023 (the most recent year of data availability at the time of writing), the number of properties in the PRS grew by just over 25,000 dwellings. Chart 2 simplifies the above data into two blocks, whilst comparing this data to changes in the total number of dwellings (as estimated using the same survey-based source):

The figures presents a clear picture: following the rapid expansion of the PRS earlier this century, there has been a more recent slowdown in the growth of the sector compared with the overall housing stock growth.

Note that the rapid expansion of the PRS did not coincide with a particularly high uplift in the number of dwellings overall – in fact the annualised growth rate in the total number of dwellings in the two periods is higher in the 2016-2023 period than the first (0.97%pa Vs 0.82%pa for 2016-2023). 

The chart below introduces an alternative perspective on the relative decline in PRS dwellings:

Again, the data shows growth in the relative proportion of the PRS in the opening period covered, followed by a slow, but noticeable decline in "market share" since 2016. 

Spare capacity

Finally, consider the proportion of vacant properties in the PRS. The first chart above shows the number of vacant properties to be more-or-less the same since 2016 (though there is no data for two of the years): in some years the number is a little above 500,000, sometimes a little below (2019 is something of an exception).  

The chart below shows the proportion of vacant properties as a percentage of the estimate of the total number of dwellings in the PRS: 

After falling from 2008 and 2009, the proportion of PRS dwellings classed as “vacant” has remained constant. One-in-ten rental properties in the private sector are unoccupied. These vacant properties reflect the amount of ‘spare’ or underused capacity in the sector. 

The implication is there had been no change in the excess capacity of the sector by 2023, even though the growth in the supply of PRS dwellings has slowed considerably.

Note also that the PRS accounts for between 43-45% of all vacant dwellings (according to the EHS) – again this metric has remained almost constant across the entire study-period. 

This lack of spare capacity has almost certainly exacerbated the shortage of rental properties which became a feature of the housing conversation in 2023 and 2024. 

Household growth

The chart below shows the number of households in England over the same 2008-2023 period. Figures have been rounded to be consistent with the dwellings data:

Some key insights from the above data:

1. Across the entire period, household growth has been well under 1% per year – averaging at 0.78% growth per year.
2. Using the same model, forecasters predict the next 20 years will see household growth fall still further – averaging just 0.57% growth per annum.
3. At present, the rate of increase in total dwellings – 0.97%pa between 2016-2023 – has exceeded the current increase in the number of households. 

So will long term trends simply correct the current housing crisis?

The England-wide picture presented above is not the full story….

Consider the chart below. Chart 6 sets out a measure of “dwelling cover” – the ratio of dwellings (this is all dwellings not just those in the PRS) against the number of households.

Where this ratio is less than 100%, the number of households exceeds the number of dwellings (this is perfectly possible given the existence of HMOs for example) – and vice versa.

Even though even though dwelling cover has increased - most notably since 2016 - the balance is still finely poised. Chart 4 above also showed there is no tangible evidence of additional capacity in the PRS (measured by vacant dwelling units). 

So, the data shows that:  

1. Over 40% of all vacant properties are in the PRS and 
2. Vacant property levels in the PRS are twice that of the housing market as a whole, 
3. Therefore, much of what flexibility in the housing market actually does exist, depends in the most part of the PRS.

Is the housing market in equilibrium?

The final piece of data shows an example of how the housing market is failing to provide homes in the right areas of England. By “right” we mean in those areas where demand is greatest (and where the economic benefits of providing an adequate supply of housing are also greatest).

Chart 7 shows (a) actual population growth – as recorded in the 2011 and 2021 Census of Population and (b) growth in the housing stock for two local authority areas. Firstly, the neighbouring metropolitan boroughs of Barnsley & Doncaster. Secondly the university cities of Oxford and Cambridge. These latter two cities have long been identified as being of key strategic importance to the UK economy. See for example the Oxford-Cambridge Growth Corridor strategy that aims to boost the UK economy by up to £78 billion by 2035.

Here is a demonstration of local mismatch between demand and supply. In Oxford and Cambridge, the increase in the stock of dwellings has been roughly half that in Barnsley and Doncaster. But population growth in Oxford and Cambridge was over two-thirds higher. 

There are two ways in which the housing market can correct these distortions – other than significantly altering the actual supply or demand of housing:

1. Through increases in house prices in the owner-occupied sector, which then knock-on to the price of rentals in the PRS. 
2. To draw on the stock of vacant properties in areas of high demand – bringing back vacant property onto the market more quickly.

Data is available on (1) – where both average prices and price growth (as recorded by the ONS) is consistently higher in Oxford & Cambridge. But, there is no local data or evidence on (2), but it remains a reasonable assumption that spare housing capacity is greater in Barnsley and Doncaster than in Oxford or Cambridge. 

The key point is this: until planning reforms lead to significant supply shifts in areas such as Oxford and Cambridge, the local housing market is in an even more delicate balance in some areas than the national picture as described in Chart 6 would indicate. 

Summary

This blog post has shown how the rapid expansion of the PRS ended almost ten years ago. The housing problems England (which is where this data covers) has faced has been due not to population increases, nor to too many homes in the PRS, but a failure to expand the overall housing stock, especially over the last decade. 

This failure has placed the housing market in a delicate position. In some areas of England, there is a complete imbalance between housing supply change and population growth. In other areas housing supply has expanded ‘too much.’ 

The result has been house prices have become one of the key regulating valves for demand – but this has wider implications for the economy.

Outside of price, the other main regulator of demand has probably been a locally-flexible private rented sector, which can supply housing needs when neither policy makers nor builders can expand housing stock quickly enough. 

Policy implications

All the above implies the need for an overall expansion of the housing stock, and in the short-medium term, the retention of a healthy, flexible PRS. 

However a set of national policies on the PRS is about to be introduced which, whatever their merits individually, collectively do nothing to retain investor confidence within the sector. 

In addition, national (UK-wide) tax policies threaten to upend the current delicate balance in the housing market.

Here is some analysis based on a poll of NRLA members undertaken by leading City forecasters Capital Economics. It sets out what may happen were government to remove Section 24 tax credits from private landlords, and the impact on supply in the PRS. Note these impacts are UK-wide, not England but clearly the greatest quantitative impact would be in England: In 2023 the Scottish Housing Survey indicated there were approximately 350,000 dwellings in Scotland's PRS, compared with just under 4.9million in England. Though not directly comparable as a source, in December 2023 there were approximately 214,000 dwellings registered with Rent Smart Wales. 

The combination of known changes with the potential for further tax-based change could bring about large scale disruption to the PRS supply side - at a time when confidence is low. The above, independent, modelling indicates up to one-third of all dwellings in the PRS could be at risk.  

This analysis underlines the need to address the housing market as it now stands and not be seeking to respond to changes which took place in the aftermath of the Global Financial Crisis, which began almost twenty years ago.

Until the long-promised increase in dwelling units arrives, England’s housing market is delicately balanced. Were even a proportion of the forecasts to become true, the result of short-term, sledgehammer policies on tax could be catastrophic, particularly in those areas where the balance between supply and demand is most delicate.