Disappointing news for Generation Rent

Tony Ward

January 6, 2016

Tony Ward is chief executive of Clayton Euro Risk.

The Royal Institution of Chartered Surveyors (RICS) has warned that the cost of renting in the UK could rise faster than house prices over the coming five years.

The surveyors suggest that by the end of that period, tenants could find themselves paying at least 25% more than now.

Unsurprisingly Simon Rubinsohn, RICS’s chief economist, has blamed government moves for discouraging would-be buy-to-let landlords: “In the long run I’m concerned that rents might increase rapidly,” he said.

Mr Rubinsohn is, of course, referring to the government’s attempt to stem the flow of money invested in property, cutting tax breaks from 2017 and raising stamp duty from April 2016. “Critically, our principal concern with the measures announced by the government is that they are overly focused on promoting home ownership at the expense of other tenures,” he said. “Discouraging buy-to-let could see private rents take even more of the strain.”

Research from the Residential Landlords Association out this week showed that more than 200,000 landlords – the equivalent of one-in-ten – plans to leave the market. Supposing each landlord owns an average 2.5 homes that would bring some half a million properties onto the market over the next five years, which will certainly skew the market somewhat.

Separate research by the National Landlords Association suggests that the chancellor’s changes to tax relief will increase rents by up to £113 a month. The impact is likely to be greater in the capital, where average rents are now £1,134 a month and would need to rise some 10% to cover the cost of the tax change.

If all these figures are proved correct, this is worrying. Surely we need balanced housing and rental markets which cater to individuals and their needs. It is dangerous if rental costs rise out of proportion with house prices. How can we expect would-be home owners to save for that increasingly high deposit if a growing chunk of their salary has to be spent on rent? As noted in my blog in June,

Britons already spend much of their disposable income on rent, typically around 40% compared with the European average of 28%.

Of course, there will always be those who prefer to rent rather than buy, but by discouraging would-be landlords of the future, are we not limiting choice?

I have recently written of my concerns regarding the buy-to-let market.  Given this new data, I reiterate my message to the Chancellor and Bank of England going into New Year: adopt a wait-and-see approach for the time being, resisting any further impulses to restrict lending in this area.

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