Is the UK rental market running out of steam?

The private rental sector (PRS) is facing a supply crisis, with rental inflation reaching a 13-year high in the third quarter, according to the Hometrack Index.

The District Councils Network has warned that housing services are under "significant pressure" as landlords sell or convert to the short-term lettings market, drawn away by more attractive tax terms.

Stock of privately rented housing may be dwindling 

Despite a busy period of buy-to-let house purchases, industry data shows that the PRS is not in good shape. Paragon Bank announced that it had lent £1.6 billion to landlords during its last financial year, a significant proportion of which was to buy new property.

However, it is unclear how many of those transactions were recycled between landlords rather than adding additional stock to the PRS, or how many landlords decided to take advantage of house price inflation and sell to owner-occupiers.

The decline in the PRS is reflected in Government housing data, which highlights that between 2016 and 2021, the proportion of households living in the PRS declined from 20.3% to 18.5%. According to the English Housing Survey, the number of properties in the PRS declined from 4.85 million to 4.25 million over the same period.

Is there a solution?

The government needs to balance the needs of different housing tenures to prevent leaving those with lower incomes struggling to either own or rent and to prevent rental inflation from becoming the norm.

Further obstacles to PRS supply include new energy-efficient rules that could prompt more landlords to leave the sector. Additionally, landlords who entered buy-to-let in the mid-1990s are now hitting retirement age and may potentially sell their portfolios.

Some suggest that build-to-rent (BTR) can fill the gap left by private landlords, which the government favors. However, BTR is targeted at a particular segment of the rental market: urban, affluent professionals, and cannot respond as quickly as private landlords to local changes in tenant demand.