Over the last decade, Generation Rent has been expanding. Since the early 2000s, the number of households that rely on a private landlord to provide a roof over their heads has more than doubled from around 2 million to 4.7 million. That’s thought to be around 11 million people.
For a while, it seemed as though these people – who are mostly young adults – would be “forever renters”; the first generation since consumer mortgages went mainstream in the 1980s, where large numbers would not be able to buy homes of their own, but, instead, as the Resolution Foundation warned in 2018, face renting from “cradle to grave”.
Rents continued to rise, more and more young adults were locked out of homeownership and being a landlord became a very lucrative pursuit.
But now something unexpected is happening in the housing market, which suggests that this is all about to change: the number of private renters has stopped increasing, and there are fewer and fewer new homes available for rent coming onto the market.
According to data from the Royal Institution of Chartered Surveyors (RICS), the number of homes for rent fell sharply again in June for the 11th month in a row. Similarly, new data from the Bank of England has shown a decline in the number of new buy-to-let mortgages being taken out. At the moment, only 8 per cent of mortgages belong to landlords, that’s down 0.3 percentage points on this time last year and one of the lowest levels recorded in recent years.
Britain’s private rental sector, once an investor’s dream where a buy-to-let mortgage was effectively a license to print money, might just be a victim of its own success.
Landlords bought up so many homes and increased rents so much that, now, the market has peaked and is beginning to plateau. This has been helped by the impact of an end to tax breaks for landlords, inflation and the fact that interest rates are still nearly double what they were before the pandemic.
The imminent legislative change that will be ushered in by Labour’s Renters’ Rights Bill is also a factor: renting is about to become far more flexible for renters, and it will be harder for landlords to justify disproportionate rent hikes when this law passes.
Major estate agent Hamptons has downgraded its growth forecast for the rental market from 4.5 per cent to 1 per cent for 2025.
It’s not quite the case that all of this points to the “exodus of landlords” that the landlord lobby warned of when Labour confirmed that they would push their Renters’ Rights Bill through in the first year of government. Nonetheless, all of the indicators suggest that Britain’s private rental market – which used to seem unstoppable – has stopped expanding.
It might sound like cause for celebration, but this isn’t necessarily good news.
At this exact moment, there are more than 1.3 million households – many of which are families with children – on waiting lists for social housing in England alone. We simply don’t have enough social homes for them to live in. It will take time to build more, even though Labour has committed money to ramping up delivery via the Affordable Homes Programme (AHP). So, like it or not, we depend on there being private landlords with homes to rent out.
On top of that, house prices may have stopped rising so high, so fast, but they remain at near-historic highs across the country and are unaffordable for many people. Even with Labour’s relaxation of mortgage lending rules, there’s a cat’s chance in hell that young adults caught in the private rent trap are suddenly going to become homeowners in their droves.
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Quite the contrary. Exclusive analysis for this column conducted by the independent think tank, the Resolution Foundation, shows that thousands of young adults are still stuck in privately rented homes. This is the case for more than one in four 30-49 year-olds, which is up from one in five in 2010.
However, for even younger adults aged 19-29 the data tells a different story. The number of people in this age group who privately rent has actually fallen, according to the Resolution Foundation. This suggests that they’re still living at home with their parents because they can’t afford to move out, which is another major societal shift.
The Renters’ Rights Bill will make renting more financially stable and legally secure for private renters. Interest rates are unlikely to come down any time soon, too. All told, it’s likely that the heyday of landlord investors has been and gone. There’s still money to be made by renting out a home, of course, but whether there’s serious profit is another matter.
If these trends continue, we will see more and more young people living with their parents throughout their twenties, more low-income renters in need of social housing and, possibly, the contraction of the private rental market. This could mean that there are more homes available to buy.
If that happens, the housing market could rebalance in a major way so it works more for people who want to buy homes they can live in than it does for people who want to speculate on investments and buy up homes they do not actually need. This might just be the end of renting as we’ve known it.
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