David Kingman looks at the findings from a recently-released report by one of the UK’s top buy-to-let mortgage providers, which shows how the sector has enjoyed staggering growth over the last 18 years
The amazing growth of Britain’s private rental market has been highlighted by a new report from specialist buy-to-let mortgage lender Paragon, which shows that nearly 1 in 5 of all the homes in Britain now belong to private landlords, of which there are around 2 million in total.
The report, entitled 18 Years of Buy-to-Let, has been published to mark the 18th anniversary of the first dedicated buy-to-let mortgages, which were launched in 1996. It shows that the total value of the UK’s buy-to-let portfolio is around £1 trillion – and projects that the growth of buy-to-let is only going to continue in the years ahead.
The shape of things to come?
In addition to chronicling how much the buy-to-let sector has grown during its 18 year existence, Paragon’s report is bullish about the potential for future growth.
The authors use government projections to argue that the total number of housing units which are rented privately is likely to increase by another 6.8 million between 2012 and 2032. They anticipate that the share of total housing units which are privately rented will more than double, to reach 35.2%, while owner-occupation will slide from 64.2% to 49.2% and the social rented sector will shrink even further, from 17.8% to 15.6%, during this period. It’s possible that by 2032, more than 1 in 3 properties could be owned by private landlords.
The report argues that the global financial crisis appears to have had remarkably little impact on the buy-to-let sector. Although specialist buy-to-mortgage products almost completely dried up at the onset of the crisis, the sector continued to expand because there were enough investors who were able to pay for new properties with cash, while demand was still increasing because so many would-be owner-occupiers were finding it impossible to afford a foothold on the housing ladder. Therefore – as the report shows – the number of privately rented housing units actually increased more rapidly during the years when the crisis was at its peak than it had done during the era of economic growth that preceded it.
If investing in buy-to-let has become genuinely recession-proof – as these figures suggest it has – then the growth of renting clearly isn’t going to start reversing any time soon. Is this really a good thing?
A nation of renters?
The obvious implication of the trend examined in Paragon’s report is that Britain is rapidly becoming a nation of renters rather than owner-occupiers. Figures which came out alongside the report from the Social Mobility and Child Poverty Commission showed that 20.8% of families with children are now renting privately, compared with less than 6% in 1988; the Commission argues that the high costs and insecurity which often accompany private renting are significant causes of child poverty.
Although renting does have its advantages in some respects – it makes it easier for people to move between different areas to look for work, as well as upsizing or downsizing when their needs change – many commentators highlight its drawbacks.
Economists have long argued that channelling vast amounts of money into property investment is inefficient, as it could potentially rob the rest of economy of productive capital. Tenants, especially young adults, complain about the “rent trap”; the problem of having to spend so much of their monthly income on rent that it robs them of the ability to save up to buy their own homes; renting can easily switch from being a temporary stopgap to become a way of life.
There is a very strong intergenerational divide within the buy-to-let market. Paragon’s report highlighted that the average buy-to-let investor is aged 56, while tenants tend to be in their twenties and thirties (although the age profile of tenants is growing older as the number of lifetime renters increases). It can be argued that those landlords who are in their fifties and older have done extraordinarily well out of Britain’s housing system, as they would have come of age in an era when many more homes were being built and much more public subsidy (including Mortgage Interest Relief at Source, or MIRAS) was directed towards encouraging owner-occupation.
Today’s young renters, by contrast, find themselves being forced to rent by a shortage of affordable housing and the added competition they face from landlords when they try to buy somewhere. Added to that, they are effectively subsidising landlords through the tax system – not only through the total bill for Housing Benefit (which could top £25 billion a year by 2017), but also the £13 billion of annual tax subsidy which – as IF’s research has shown – is currently directed towards landlords by various allowances and deductions they can claim (support for young owner-occupiers, including MIRAS, having completely disappeared apart from small-scale initiatives such as Help to Buy).
Judging by Paragon’s report, it appears that an enormous change in domestic life has taken place in Britain over the last 18 years through the growth of private renting, but it has been conducted in such a diffuse and piecemeal fashion that there has never really been any proper national debate about these crucial issues. Hopefully, the growing significance of private renters as a political constituency will do something to change this, as at the moment there seems to be a danger that Britain will be permanently transformed into a nation of renters – whether we want to become one or not.