Supply of new property to let drops again

Michael Lloyd

August 9, 2018

Some 22% more surveyors saw a fall rather than rise in new landlord instructions in July, the eighth consecutive quarter in which this indicator has recorded a negative number, the RICS UK Residential Market Survey has found.

This pattern reflects the shift in the buy-to-let market in the wake of tax changes which are still in the process of being implemented, as smaller scale landlords exit the sector. Significantly, the drop in instructions is evident in virtually all parts of the country.

Simon Rubinsohn, RICS chief executive, said: “The impact of recent and ongoing tax changes is clearly having a material impact on the buy-to-let sector as intended.

“The risk, as we have highlighted previously, is that a reduced pipeline of supply will gradually feed through into higher rents in the absence of either a significant uplift in the Build to Rent programme or government funded social housing.

“At the present time, there is little evidence that either is likely to make up the shortfall. This augers ill for those many households for whom owner occupation is either out of reach financially or just not a suitable tenure.”

The number of tenants looking for a new home remains in positive territory at a headline level (+4% in the latest three month period).

Over the next 12 months, rents are projected to increase by a little short of +2% nationally. But the shortfall in supply over the medium term is expected to force a cumulative rise of around +15% (based on three month average of responses) by the middle of 2023.

East Anglia and the South West are viewed as likely to see the sharpest growth over the period.

The June survey signalled some doubts as to whether the pipeline of new supply would continue to improve in the light of the feedback on appraisals being conducted by valuers. This was upheld as the appraisal balance in July was once again firmly negative.

As a result, RICS judged that the average inventory on the books of estate agents is likely to remain close to historic lows.

This impact of this is visible in both the 12 month sales and price expectations net balances. While the former recorded a reading of -7%, its most negative number since October last year, the latter was much firmer at +25%.

Abdul Choudhury, RICS policy manager, added: “Our survey suggests that recent government policy and legislation changes have impeded the growth of the private rented sector (PRS), which is a vital part of a functioning homes market.

“Withdrawing tax breaks that small landlords relied on, placing an extra 3% on second home stamp duty, and failing to stimulate the corporate build to rent market, has understandably impacted supply.

“While the current focus is rightly on using regulation to improve the experience for tenants, government must urgently look again at the PRS as a whole, including ways to encourage good landlords. Ultimately, government must consider the impact of its policies, and if the wish is to move away from PRS, it must provide a suitable alternative.

“If they wish to improve PRS, as we have suggested by professionalising through regulation and the PRS code, there is justification to reconsider the approach taken to tax.”

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