“The shift in Britain is irrevocably moving away from buying and edging towards renting.”
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One of the many pressing challenges facing new Prime Minister Boris Johnson is the changing shape of the U.K. housing market. In particular, a culture that’s seeing more and more people – for reasons of preference or circumstance – eschewing purchasing their own home in favour of renting.
It’s an ideology that’s far more established elsewhere in Europe than in the U.K.
Renting as a culture outside of the U.K.
Arguably the country with the most firmly established rental market is Germany, where renting a home is still considered a norm. According to numbers from Statista, in 2017 the homeownership rate in Germany sat at 51.4%, comfortably the lowest across the continent. By comparison, the U.K. rate is 65%, and for more extreme contrast, in Romania, it’s 96.8%.
It’s well known that Germany’s significant rental market is in large part a product of its history. After World War II, around 20% of Germany’s housing had been destroyed. Hundreds of thousands of homes were damaged, and millions of citizens needed somewhere to live, without the financial means to buy a home.
In the late 40s and early 50s therefore, a huge housing programme began, that saw the government investing in building large numbers of homes and overseeing the rental market. Even today, the government still plays a significant part in supporting the market, to the point where the German statute book is actively encouraging it. Most European governments go the other way and offer support for buyers over renters.
The high level of government involvement in the German rental market has not been without a significant downside. A new ‘rental brake’ system, for example, hasn’t been successful. The law – supposed to cap the price of new leases in markets with a tight supply of rental property (as defined by the relevant federal state) at 10% above what local authorities considered reasonable – has produced the opposite effect to its original intent. Between 2015 (when the law was introduced) and 2017, rents in central Berlin went up by almost 10%. Prior to its introduction, increases had been much more minimal, at just 1 or 2%.
Ultimately, excessive control only serves to drive up the price of most rents by restricting the supply of new units onto the market. Something that the U.K. market must surely resist. Although rental is taking up a larger piece of the property pie in the U.K., the government needs to avoid regulating the free market where possible, instead favouring light-touch legislation that encourages a healthy and robust free-market economy.
Rental stock
The British government’s efforts so far have been to encourage buyers. Its Help to Buy scheme is its flagship initiative, costing some £10bn and counting with more bills yet to come. It’s also driving investment in affordable homes. But on the rental market, it’s been less active. Between March 2017 and March 2018, for instance, the owner-occupied dwelling stock increased by 226,000; over the same period, private rented stock increased by just 10,000.
The U.K.’s rental stock problem has only been exacerbated by the recent Tenant Fees Act, which became law on 1 June 2019. The legislation outlaws most letting fees and caps tenancy deposits, but has brought caution in the buy-to-let market, sending out a discouraging message to potential private landlords. Furthermore, the government is pressing ahead with plans to end ‘no-fault’ evictions. A survey by the Residential Landlords Association (RLA) in the aftermath of these moves suggests that 46% of private landlords are now looking to sell-up and exit the market.
Already, low stock has sent U.K. rents soaring over recent years. The median rent for a one-bedroom flat in the East of England, for instance, went from £495 in 2012–3 to £650 in 2017–18 – a rise of nearly a third, against a backdrop of nationwide austerity. The average London rent, meanwhile, stands at £1679 a month, and it’s rising by around 2.44% a year.
This isn’t a U.K.-specific problem, either. Relatively inelastic supply in major cities around Europe is helping to drive up rents (going back to that German example, Berlin alone has seen rents rise 5.6% year on year). But it’s still a problem, to the point where the aforementioned Residential Landlords Association is arguing the U.K. is on the verge of a “private rented housing crisis” unless action is taken.
Solving the problem
The decades of British governments pushing the ideology of homeownership and encouraging first-time buyers feel like they may be drawing to a close. The government has confirmed that its Help to Buy scheme will finally end in 2023, and that’s set to free up funds that the rental sector is crying out for.
No announcements of note have yet been forthcoming though, despite the rising importance and changing face of the U.K. rental market. The demand for renting is rising, house purchases are becoming less affordable and less financially prudent, and there are growing concerns of a societal schism between those who own their own home and those who don’t.
Is there, then, a solution that caters for the demands of both buyers and renters? Stimulating high availability and choice feels now like basic economics: it’s what the market’s customer base is increasingly demanding, and said market has to ultimately reflect that. With higher availability of rental stock – which will require drastic action on the housing crisis (a subject I’ve covered in a previous article on Forbes) – the U.K. can elicit fairness and affordability in its own marketplace.
Final thoughts
Whatever the solution, the new Prime Minister and his government need to adapt to how it approaches and supports the rental market. The shift in Britain is irrevocably moving away from buying and edging towards renting. In fact, it’s estimated that one in four of us will be in a private rented property by 2021. It’s a sector that can no longer be ignored, nor seen as secondary to the buying and selling market. Especially because we’re now seeing the emergence of renting as a lifestyle trend, and no longer the forced-choice due to a lack of options or funds.
Expect this to bring about a profound shift in what we campaign for, what we market, and what we legislate, as the traditional definition of a home evolves to serve needs well beyond property ownership.
