Generation rent pushes values higher

‘Generation rent’ is here to stay. The idea that home ownership is the primary way to provide housing appears to have been rejected by the government, with ‘build to rent’ sitting alongside plans for affordable housing development.

Official figures in the annual English Housing Survey show that home ownership fell to the lowest level for 30 years in the financial year 2015-16, with the number of renters accounting for almost one fifth of all households.

Affordability issues around getting on the housing ladder is one part of the story – one in three first-time-buyers has help with a deposit from family according to recent figures – but there are also indications that renting can also be a conscious choice, especially among the millennial generation. With a preferred location and flexibility being higher on the list than a ‘sense of ownership’ for some, the housing landscape is undergoing something of a transformation in the UK.

The latest RICS figures revealed a continued increase in demand among renters at the beginning of this year, but the available stock of rental properties is not keeping pace. With supply and demand out of kilter, rental values are expected to outpace house price inflation. In its five-year projection, the RICS expects to see a cumulative increase of more than 25% in rental values.

This anticipation for rising rental values combined with a growing pool of renters is likely to come as good news to investors, as they seek to navigate the hurdles of increased costs around stamp duty land tax and forthcoming changes to mortgage interest tax relief.

Meanwhile, the shortage of new housing is likely to persist despite government assurances that it remains a priority. Many commentators fear the target to build one million new homes by 2020 is at best ambitious, while the recent housing white paper received a somewhat muted response.

Against this backdrop, the imbalance between supply and demand in the rental market is likely to persist if the move towards renting and ‘Generation Rent’ continues as experts are forecasting.