Shift to rent to accelerate
Shift in Property Ownership
There is a fundamental shift in property ownership occurring in London according to new analysis by PwC.
The city is being transformed from ownership to rent with a significant shift from nearly two-thirds owner-occupiers to 60% of Londoners forecast to be renters in less than 10 years.
In 2000, just under 60% of Londoners owned the homes they lived in, either outright or with a mortgage, and 40% rented, including 15.2% who rented from private landlords.
But PwC estimates that by 2014, home ownership in the capital had fallen to 45.9% and renting had jumped to 54.1%, with the share of private renters rising to 29.5%.
This shift is expected to accelerate over the coming years and by 2025, PwC predicts that 39.5% of Londoners will be private renters – the exact same level as owner-occupiers.
When social renters are added to the mix, the proportion of Londoners projected to be renting in 2025 rises to 60% – a reversal of the pattern of tenure in 2000.
Reasons for the trend
This trend is occurring mainly because the record level of high prices in the capital are making homes unaffordable to many, especially for younger people, and the result is likely to reverse a century-long trend towards rising home-ownership rates. Since the turn of the century the city has been transformed to one where rental is becoming the norm.
The analysis also reveals that all regions within the UK are expected to experience falling levels of home ownership and rising levels of private renting over the next 10 years, with Scotland and the north of England expected to see faster growth in private renting than the south, excluding London.
According to Richard Parker, partner in PwC’s housing sector team “A number of factors are driving this predicted shift in tenure within the housing sector: a lack of new housing supply to meet increasing demand has pushed up prices to unaffordable levels for many, mortgage deposits require savings that are well out of the reach of first-time buyers and we’re also seeing younger people increasingly showing a preference for high-quality rental housing. As a result we’re now seeing a growing number of investors putting significant funds into the development of quality, private market rental accommodation, which they are viewing as a long-term revenue stream”.
As homeownership increasingly comes to be seen as an unaffordable luxury rents in London are also expected to rise from already high costs – further reducing the chance of saving for a down payment.
London moving into line
In this respect London is moving into line with major cities in many countries such as Germany and Switzerland for example that seem to function pretty well with far larger private rental sectors than the U.K. However a major reason why these countries’ housing markets work is because tenants have far more and better protections and generally better rental housing standards.
In the U.K., tenancies last on average for just 12 months and in a seller’s market like London, rental apartment quality can often be poor. If living conditions in the city aren’t to be permanently downgraded, something will have to change to make renting a better, more secure option. As PwC partner David Snell notes in the report “With around 60% of Londoners predicted to be renting by 2025…policy will need to adapt. This could include encouraging a better quality of private rented accommodation, including longer tenure periods and more rental properties designed for families.”
Tenants deserve high quality
As London’s housing balance continues to tip towards renting so tenants should be in a position to put increasing pressure on landlords to create the changes and improvements traditionally enjoyed by their counterparts in Germany. There the rental tenants’ bloc is larger, wealthier and better connected, and thus more able to petition for its own interests.
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