The Private Rented Sector (PRS) in the UK has grown 47.9% over last five years and will continue to grow, according to Jones Lang LaSalle’s (JLL) latest research on home ownership and the housing market. JLL estimates that an additional £57bn of funding will be required per annum if the PRS is to continue to provide sufficient homes to meet demand. However, changes introduced by the government – alongside wider economic and social shifts – could lead to institutions and other large-scale investors entering the sector, according to Jones Lang LaSalle’s MultiFamily research report. Over the five years from 2006, the number of households renting privately increased by 47.9%, or 8.2% per annum. If this rate of growth continues, it will mean some 1.7m additional privately rented homes will be required by 2016 equating to an annual investment of circa £285bn – over eight times the size of the current buy-to-let market. Jon Neale, director of residential research at Jones Lang LaSalle, commented: “For most young people, high prices and unrealistic deposit requirements make homeownership unachievable and as a result many households are now finding themselves in private tenancy. Given that the mortgage market is likely to remain constrained in the near term, it is not unfeasible that the expansion of the sector could accelerate. “Much of the historic growth of the sector has come from individual private investors, resulting in highly fragmented ownership with significant management overheads; rental returns, at least, are proportionately lower than in the commercial sector. There is now an opportunity for institutions to enter this market, perhaps incentivised by some of the recent changes outlined in the Government’s Montague Review.” The Montague Review suggests that planning authorities specify that a certain proportion of schemes – perhaps ones that struggle to be viable in the current climate – remain in the private rented sector for a set period of time, with no affordable housing requirements attached to these units. This would allow the creation of a separate asset class valued in a different way to conventional owner-occupied housing. The Government has also announced £200m of funding and £10bn of debt guarantees to help support the emergence of the sector. Nevertheless, while change is taking place, there is still a stark contrast with the US where the ‘multi-family’ model has been fully integrated into the housing system. Funds have developed large single blocks which generate huge management efficiencies and provide a variety of high-quality accommodation for tenants that are specifically built-to-let unlike the vast majority of PRS properties in the UK. Jones Lang LaSalle believes that the conditions are now in place for this sector to emerge in the UK.
Article courtesy of Property Investor Today