The private rented sector (PRS) is becoming an increasingly important part of the British economy. It has been expanding steadily in recent years and looks set to continue this growth for the foreseeable future. Indeed, the Association of Residential Letting Agents (ARLA) has estimated the sector is already worth £500 billion and contributes £30 billion to the UK economy each year. But why is the PRS so valuable and what does this mean for letting agents? Read on to find out.
A growing force
Figures released by the Department for Communities and Local Government in February 2013 revealed the private rental market had reached its highest level since the early 1990s and at 3.8 million homes had drawn level with the social housing sector.
Much of this growth has been put down to the development of ‘generation rent’ – people aged 35 and under who tend to live in rental accommodation rather than owning their own home. The growth of this group is a result of both choice and necessity. On one hand, high house prices and low wages mean many people are forced to rent as they simply cannot afford to buy a property.
However, there is also a significant number of Brits who prefer to live in rented accommodation. Research carried out by insurance firm LV= Liverpool Victoria found 42 per cent of tenants aged under 35 are happy renting and would be willing to do so for the next ten years or more. It was suggested this is the result of a cultural shift, which means homeownership is no longer seen as the key life ambition it once was with older generations.
Further expansion on the horizon
While the PRS has already demonstrated strong growth, there are plenty of signs to suggest its expansion is set to continue in the coming years. In 2013, Lucy Jones of LSL Property Services predicted around one-fifth of Brits will live in rental accommodation by the middle of the current decade, while a report by the Castle Trust last March found six in ten renters think they will never own their own home.
It has been suggested the recovery of the housing sales market that has occurred at the end of 2013 and start of 2014 would dampen PRS growth, but a number of reports suggest this will not be the case. RightMove has predicted the next 12 months will see both a “buoyant sales and rental market”, while Savills and other organisations have claimed the government’s Help to Buy scheme will have little impact on PRS expansion.
The strength of the UK’s PRS is naturally good news for letting agents, who stand to benefit from the growing demand for rental property. However, agencies cannot expect to simply open their doors and see tenants – and profits – come flooding in, as the market is highly competitive.
Furthermore there is close scrutiny on the letting sector at present, with media reports of bad practices and scrupulous operators giving the industry a bad reputation. To overcome these challenges and take advantage of the booming PRS, agents must ensure they provide a clear and transparent service and use specialised property management software tomaximise efficiency and reduce their admin burden.
The agencies that are able to follow best practices will be well placed to move past the obstacles facing the sector and take advantage of the increasingly valuable market for private rented accommodation.