More landlords will leave private rented sector as annual rental price growth is flat

More landlords will leave the private rented sector in the next year as annual rental price growth has been flat or falling since 2016, according to a study by Edinburgh-based property management firm DJ Alexander.

The findings show that over the last year the average private housing rental price has increased by 0.9 per cent across the UK as a whole, and by 0.9 per cent in England, by 0.7 per cent in Wales, and by 0.6 per cent in Scotland over the last year there are enormous regional variations and in the medium-term growth is poor.

In England rental price growth has been below 2.0 per cent since May 2017 and below 1.0 per cent in the last four months which is down two thirds on six years ago. In Scotland rental price growth was last above 2.0 per cent in June 2015 and has fallen steadily even going into negative territory four times since then.

Wales has performed slightly better although has never had 2.0 per cent annual rental price growth and has now dipped to 0.7 per cent.

However, within these figures there are enormous regional variations with the East Midlands the best performing area rising to 2.7 per cent with London at the other end of the spectrum where annual price rental prices fell by 0.2 per cent over the last year and have been in negative territory for the last six months.

Over a five-year period, London has seen annual rent rates fall from 3.3 per cent in October 2013 to -0.2 per cent in October 2018 whereas the East Midlands has seen annual price rises increase from 0.8 per cent to 2.7 per cent over the same period.

The West Midlands, Yorkshire and Humber, the East of England and the South West have all experienced quite substantial increases in their annual rental price percentages.

However, for London, the North East and the South East the annual increases have fallen over the same five-year period.

David Alexander, managing director of DJ Alexander Ltd, said: “These figures highlight the tightening private rented market where margins are being squeezed and the casual landlord will be feeling the pinch. Many areas have almost static or barely rising annual price increases which, coupled with recent legislative changes which make it more expensive to be a landlord means that many will be pushed towards exiting the market.”

“The tax changes introduced by George Osborne continue to reduce the offsets which make running a property more expensive while Chancellor Hammond has reduced capital gains tax (CGT) on selling rented property which makes the exit from the market more expensive. With the number of negatives increasing some landlords, many of whom only accidentally entered the market in the first place, may decide that now is the time to leave.”

Mr Alexander continued: “Although there probably won’t be many tears shed for private sector landlords leaving the market, they play an essential part in providing vital housing stock across the UK. The private rented sector now accounts for 20% of all housing stock (ahead of social housing which stands at 17.1%) and houses many millions of people. If the market contracts too quickly there will be many people unable to find suitable accommodation.”

“What is clear is that there is no one experience which is applicable across the whole of the country. Some areas are clearly holding up well and producing strong returns for landlords and investors whereas others are experiencing static or even falling prices. Everybody knows that London is undergoing a substantial price correction in the rental market and the last six months have all been negative and the last month which showed an annual increase above 1 per cent was in August 2017 so it is likely that this situation will persist in the medium term. However, London has been through this before and there is little doubt that rents will start to rise again.”

Mr Alexander concluded: “We need to be sanguine about these figures and recognise that property is not a static or fixed market. Rental prices will rise and fall with demand, and investors and individuals must understand this. But it is also clear that the private rental sector plays a crucial role in providing homes for millions of people and the less attractive this market is then fewer people will be inclined to be involved. The issue then will be where will everybody stay if there is no viable alternative? We need a responsive, dynamic and accommodating private rented sector as part of the overall mix in housing stock and the better landlords will adapt and survive to whatever the circumstances while those who were in it for the short term are likely to leave in the next year or so.”