Supply must be increased to Meet Rental Demand

Rental Demand is outstripping the supply of rental accommodation in Edinburgh.

For the first time ever, this summer, DJ Alexander, the Edinburgh and Glasgow-based letting and estate agency?s quarterly rental price tracker recorded an average cost of privately renting in Edinburgh exceeding £1,000 per month.

This, they say, is partly related to changes in the fee structure charged by letting agents ' the Scottish Government banned letting agent fees on tenants ' but, 'there is absolutely no doubt that since the recession, and throughout the more recent recovery, rental costs have gone up inexorably due to growing demand.?

This story is being repeated in many large cities, London in particular, and also in Paris and Berlin, where the German Government is proposing a 'rent-brake' ' a form of rent control which will tie increases to a maximum of 10% from a local reference rent.

This trend to higher rents in the world?s biggest cities has been developing since the financial crisis hit, when financial pressures started to drive a bigger proportion of the population to rent rather than buy.

According to this article in the Scotsman, in Scotland it has been the new mortgage regime requiring bigger deposits, rather than rising house prices per se that?s forcing the majority of young singles and couples to rent.

However, that?s not the whole story: there?s now a significant and growing section of society for whom renting, because of its convenience, flexibility and ease of entry, has become the tenure of choice. With generally shorter-term employment contracts and job mobility it suites many, particularly the young professionals, to rent.

Owner-occupation has traditionally been seen as the way to build-up retirement capital over a lifetime; this may now be out of the question for some. But there is no guarantee that capital will appreciate in property as it has done in recent years, with an out of balance supply-demand situation, as at present, and there are other ways of achieving the same end.

The pension freedoms legislation is a case in point where the financially astute will be in a much better position to build tax-fee pension nest-eggs, which are not necessarily property related, and over which they will have total control.

Regardless of this, demand for renting is far exceeding supply in many of our larger cities and urgently needs to be addressed in the short term. The nature of property is that the supply tap cannot suddenly be turned on: in will take months and years for house building and Government sponsored schemes to encourage more, to have any noticeable effect.

In the meantime those with a political axe to grind are having a field day highlighting the problems that renters face and are calling on Governments to bring in changes to tenancy laws. Rent controls, long-terms security of tenure and restricting landlords from no-fault evictions are seen by many as a solution to this problem.

However, history shows that these measures simply drive landlords out of private renting. Although encouraging landlords to sell up may have a short-term influence of house prices as more come onto the market, this is unlikely to be significant and overall it will make the rent level and rental supply situation far worse.

Governments are now looking to, and providing tax incentives for, corporate institutions to enter the private rented sector by building large blocks of purpose-built rental accommodation. Companies which provide rental housing on a large scale have proved their worth in the USA, but the economies of scale and management expertise are if they are to compete with small scale private landlords.

According to the Scotsman newspaper article around 84 per cent of privately rented houses in Scotland are owned by smaller private landlords ' individuals, married couples or family trusts.

Rob Trotter, senior property manager with DJ Alexander, the Edinburgh and Glasgow-based letting and estate agency has said:

?Up to now they [small private landlords] have experienced impressive overall returns (i.e., in terms of capital growth and rental income) and opportunities for newcomers of this type remain. But the market is also ripe for more involvement by the professionals ' builders and their institutional backers.

?The Scottish Government must also play a role in this by recognising how vital it is that we see an increase in the availability of rental stock and by actively encouraging institutional investment, while also ensuring that existing planning legislation does not act as a barrier to new investment.?

... LandlordZONE.

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Article courtesy of LandlordZONE
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