Agenda item

3.1      Dr Jacqui Daly (Research & Consultancy Director, Savills), gave a presentation to the meeting. The key points to note were:

·         She had spent approximately 15 years conducting research on the Private Rented Sector, and was currently conducting research in the Build-to-Rent market.

·         The current market trends in housing in the UK since 2000, are that owner-occupation has been falling, social housing is continuing to fall (as it has since the early 1980s) and the private rented sector has been increasing, with an estimated 5.7m dwelling in the private rented sector by 2018.

·         This period has also seen a growth in buy-to-let properties – from 2m to 4.2m from 2001-2015 and this has helped the growth of the private rented sector.

·         Some of the factors that have led to an increase in the private rented sector have been cultural changes, such as the difficulty of young people to get on the housing ladder, more people divorcing and/or staying single, the flexibility of not owning your own home.

·         The financial crisis of 2008 has also exacerbated the problem of first-time buyers owning their own home due to the stricter lending rules and difficulty in raising enough money for a deposit, so more people are using the private rented sector.

·         There is also the issue of rising house prices, especially in London/South-East London. House prices in London have seen real annual trend-line growth of 3.6% over recent years.

·         In terms of deposit affordability, in 2002, the deposit-to-income ratio in London was approximately 40%, but in 2015 that has gone up to over 120%.

·         In the UK as a whole, the average deposit is £27,885, whereas in London alone it is £74,519.

·         There has been a definite shift from owner-occupation in the under 35 and 35-44 years categories, with a fall of 732,000 and 783,000 people in mortgaged owner-occupation.

·         People using the private rented sector went up 2.43m from 2001-2011– and in the under 35 category, went up 1.137m.

·         In Lewisham, properties in the private rented sector went up from 15,930 in 2001 to 29,375 in 2011. The social rented sector was pretty static around 36,000 and owner-occupation went down slight from 53,826 to 50,664 in the same period. The growth of growth of households in the private rented sector has been over 80%, which outstrips the growth in London and England and Wales (just over 60%).

·         The projection is that the shift to using the private rented sector is set to continue, with all age groups bar the over 65s seeing a growth in the use of the private rented sector.

·         Policymakers have been looking to see how they support the ‘build-to-rent’ market to cater for this growth in use of the private rented sector.

·         For local authorities, this is beneficial as it will help provide vibrancy and create a sense of place in large regeneration sites, ease waiting list for affordable housing, and it attracts dynamic and mobile young professional with high disposable incomes.

·         The National Planning Practice Guidance (NPPG) has offered planning obligation flexibilities for particular schemes. Under ‘viability under the Guidance, it acknowledges explicitly that viability will vary with housing type, including housing for sale or rent.

·         There were some examples of flexible arrangements to encourage ‘build-to-rent’:

o   North Acton, Ealing: M&G / HUB Residential

§  Ealing agreed to allow the conversion of the original S.106 affordable housing requirements to 20 discounted market rent units, so enabling M&G to manage the complete property as a single entity but with some tenants paying a percentage of market rent.

o   Lewisham Gateway - Muse developments and Fizzy

§  Fizzy helped to de-risk the development to ensure delivery

·         The Mayor of London’s ‘Spatial Strategy also provides a number of initiatives to aid ‘build-to-rent’ developments.

3.2       In response to questions from the Committee, the following was noted:

·         Research shows that people in this country still aspire to own their own homes, but this now happens much later than 30 years ago.

·         Some landlords and developers have looked to offer longer-term contracts as per the ‘German model’ of private rented, but Savills have found through research that young people are happy to have more short-term, flexible contracts.

·         The German private rented sector contract may start at market rate, but the rental rises are fixed, so the renter will know how much the rent will be incrementally.

·         The Committee would like some additional information on developers who are experimenting with ‘income-linked’ rents.

3.3      Kath Scanlon, Deputy Director of the LSE, gave a presentation to the meeting. The key points to note were:

·         Historically, private rented sector housing consisted of purpose built estates, for example Du Cane Court, Balham and Dolphin Square, Pimlico, both in London, built in the 1930s.

·         However, things began to change post-WWII

o   Post-deregulation (starting in the 1950s) companies wanted to sell – and did over the next twenty years

o   Owner-occupation grew rapidly with well- developed leasehold arrangements and the possibility of buying long leases

o   Tax benefits and other incentives meant private sector building was almost always for owner-occupation

o   New rented housing provided in the social sector

·         Private rented sector declined to 11% of total stock in England by the mid-1980s. However, the deregulation of rents in 1988 led to slow increase in supply of housing for the private rented sector.

·         Other factors led to the growth of the private rented sector from the late 190s, namely

o   Owner-occupation for young people badly was hit in early 1990s with the recession

o   Buy-to-Let mortgages introduced in late 1990s – therefore the private rented sector started to increase quite quickly

o   ‘Affordability crisis’ of housing in the early 2000s added to pressure on private rented sector.

·         After the 2000 Financial Crash, this led to a number of additional factors that increased the supply of private rented sector housing:

o   Credit and housing markets dried up

o   Sellers could not sell; purchasers could not buy – so the private rented sector grew rapidly

o   New housing construction fell by more than half; while Immigration and natural growth increased the population of London very rapidly

o   Crisis of supply with all net growth concentrated in the private rented sector and among individual amateur/part-time landlords

o   Policy makers looked for more housing overall and new build in the private rented sector in particular

·         Statistics show that since 1993-94-2009-2010, in London buying a housing with mortgage and social tenants has fallen, whereas owning home outright and the private rented sector has risen.

·         In terms of those who provide property for the private rented sector, nearly 80% of come from landlords who own only one property. That consisted approximately 40% of dwellings.

·         For an international perspective, England’s private rented sector constitutes 17% of the housing market, but in countries like USA (32%) and Germany (59%) it is much higher. Some other countries like The Netherlands (10%) and Spain (7%) it is much lower.

·         It was stated that in most countries tenants:

o   Young or old

o   Low-income

o   Singles or single parents

o   Mobile

§  young professionals

§  students

§  high-income corporate transfers

o   Those who can’t afford owner-occupation

§  housing benefit recipients

§  migrants

§  those who can’t afford mortgage deposits

·         Generally, those that do not live in the private rented sector, are the following:

o   Middle- and upper-income families almost always own their homes

o   Very few of the elderly rent privately in the UK (not the case in some other countries)

·         A lot of Western countries have some form of ‘rent control’, whether that be rent regulation, or tenant has the first refusal on sale of unit. The UK does not have these controls

·         For the ‘German model’, the terms and conditions for renting are as follows:

o   Tenants get indefinite leases

o   Landlords can evict only for reasons set out in the law; notice period 3 – 9 months depending on how long tenancy has lasted

o   If the landlord sells, the lease binds the new owner

o   Initial rent can be freely set, but not more than 20-50% above average rents in the local area—but new restrictions in Berlin, Munich…

o   Rent can go up every 15 months by average in the area

·         Some typical new rents for Germany are as follows:

o   Tenants get indefinite leases

o   Landlords can evict only for reasons set out in the law; notice period of 3–9 months depending on how long tenancy has lasted

o   If the landlord sells, the lease binds the new owner

o   Initial rent can be freely set, but not more than 20-50% above average rents in the local area—but new restrictions in Berlin, Munich…

o   Rent can go up every 15 months by average in the area

·         The rental offer in Germany has a number of factors:

o   Most private rented sector units are in rental-only blocks in single ownership

o   Tenants stay for long time (average 11 years)

o   Landlords invest into the longer term

o   Landlords provide minimal facilities beyond the dwelling itself: usually no furniture or kitchens

·         The economic environment in Germany is different to the UK:

o   Over most of last thirty years real house prices fell in most areas

o   General inflation also very low so costs fairly predictable, though some problems as standards have risen for example energy efficiency  

o   Some areas where pressures on rental market and difficulties in finding accommodation - extending to more cities since 2008

o   Owner-occupation and house prices in these areas now rising quite rapidly

·         The conclusions of the presentation are as follows:

o   Private rented sector has grown quickly in London since early 1990s, mostly through transfer of existing homes rather than new build

o   1988 deregulation of rents and leases contributed.  English rental market much less regulated than in most European countries

o   Private rented sector rents higher in London than almost anywhere else—as are house prices

o   Effects of policies like rent control depend on legal, cultural and economic frameworks.  What works well elsewhere might work very differently here. has grown quickly in London since early 1990s, mostly through transfer of existing homes rather than new build

o   1988 deregulation of rents and leases contributed.  English rental market much less regulated than in most European countries

o   PRS rents higher in London than almost anywhere else—as are house prices

o   Effects of policies like rent control depend on legal, cultural and economic frameworks.  What works well elsewhere might work very differently here.

3.4       In response to questions from the Committee, the following was noted:

·         The primary housing problem in London and the South-East has been the ‘housing bubble’ and high prices resulting from the supply of housing not keeping pace with demand resulting from economic growth and migration.

·         Big property developers are more inclined to deliver longer-term tenancies, such as the East Village (London 2012 Olympic site).

·         In terms of housing costs, to income, this should not be more than 30% of income to be comfortable. In London, most rents are above 30% of income.

3.5      RESOLVED: That the Committee noted the evidence given as part of its review, and thanked both witnesses for attending.