The proportion of households in the private rented sector in the UK is set to grow by 24% by 2021 which means that one in four will be renting rather than owner occupiers, new research shows.
Overall the PRS has doubled in the last 10 years or so, and it is expected to continue to grow to 5.79 million households while 68% of renters still expect to be living in the rental sector in three years’ time, according to the latest tenant survey from real estate firm Knight Frank.
The report says that growth of the PRS has been spurred by conditions both in the housing and labour markets. Younger workers especially are taking advantage of the increased flexibility of renting as a tenure which allows moving between locations without any of the costs associated with buying or selling a property.
It explains that affordability constraints in the sales market are also curtailing some tenants’ plans for house purchase, resulting in a longer stay in the PRS as they save for a deposit. There is also growth in the PRS at the more economic end of the housing scale at a time when the private rented sector as a whole is changing.
One aspect of this is the continuing growth of large scale investment in Build to Rent or Multi-housing which is professionally managed rental accommodation, usually at scale, in purpose built blocks. This market, which has only emerged in force in the UK in recent years, is now worth an estimated £25 billion.
The research found that the most prevalent type of household in the private rented sector is couples living without children, followed by those living on their own. Together, these households account for 59% of those in the private rented sector.
Around a quarter of households in the PRS are families with children, while, across the UK, 12% of households in the PRS are sharers. In London however, the proportion of sharer households rises to 26%.
According to the survey results, 37% of renters are in the sector through choice rather than issues around the affordability of owning a home. When asked to choose why they were renting, they identified factors such as the flexibility of renting, not having the responsibility of owning, or living in an area where they couldn’t otherwise afford to live. In terms of potential home ownership, saving for a deposit for a house was the most quoted reason for renting with 30% of respondents citing this as a factor.
‘We expect the demand for privately rented properties will continue to grow. Official household projections show 1.14 million new households being created between 2016 and 2021,’ said Dr Diana Babacic, of the PRS Research Consultancy. She explained that according to the Knight Frank Tenure Distribution Model, the rise in private rented sector households over the same time period will be 790,620.
Young professionals aged 25 to 34 make up the largest proportion of households living in the PRS, and this is expected to remain the same in 2021with their stay in the sector further lengthening as the affordability issues surrounding home ownership, with access to a deposit in particular, remain a challenge.
Babacic pointed out that during the next five years she expects to see slightly faster growth in the number of under 25 households in the PRS, as well as an increase in older households, especially baby boomers.
‘This growth will be largely on the demand side, but as specifically designed units for these age groups come to the market in the multi-housing sector, we expect supply to start drawing more households to the sector, for example the provision of tailored studio and co-living products and retirement rental housing for the baby boomer generation,’ she said.
‘There will be a growth in the number of mature professionals 35 to 49 years old living in the PRS, but there is an allowance for a slight slowdown in growth as this is the sector of the market where absorption of any additional housing stock which comes on the market for sale would occur,’ she added.