With home ownership levels continuing to fall, almost a quarter of all UK households are expected to be living in private rented accommodation by 2021, according to a new Knight Frank report.
Increasing property prices and stagnant wages are expected to leave many people with little alternative but to rent, which largely explains why Knight Frank forecast that the number of households in the UK will increase to around 5.79 million, or 24% of the total, over the next five years, up from about 21% today.
The latest annual report from the estate agency suggests that there are currently around 14.3 million owner occupiers and 4.3 million social tenants across the UK.
The YouGov survey of more than 10,000 tenants and 26 major investors, conducted on behalf of Knight Frank, found that while at least three-quarters of UK renters are living in homes owned by private landlords, they will increasingly rent from large-scale institutional landlords such as city firms and property companies investing in the growing Build-to-Rent or Multihousing sectors.
James Mannix, head of residential capital markets at Knight Frank, said: “The strength of the UK PRS sector has grown demonstrably in recent years. As consumer demand for affordable, flexible accommodation continues to rise, PRS is firmly establishing itself as a key opportunity for institutional grade investment, due to its long-term potential.
“In order to enhance Build-to-Rent specifically, the main hurdles of planning policy and land supply must be addressed. With both issues being recognised in the recent Housing White Paper, we hope to see the government encourage more Build-to-Rent and help to better identify developable land.”
Informed by the survey of the key investors and operators in the market, Knight Frank estimates that by 2022, the private rented market will be worth in the region of £70bn.
Young professionals aged between 25 and 34 make up the largest proportion of households living in the PRS, and it is no coincidence that it is this group of renters that are finding it hardest to acquire property, due to rising home prices and stagnating wages.
But there are also plenty of renting families, along with 50- to 64-year-old soloists and couples, as well as retired people over 65, with many of these people spending over half their incomes on rent. Overall, 40% of renters pay more than 50% of their incomes on rent, the report found.
Unsurprisingly, 68% of renters still expect to be living in rented accommodation in three years’ time, with 30% of respondents saying that the most common reason for renting was to saving for a deposit to buy a property, 21% said renting allowed them to live in an area where they could not afford to buy, while 18% calculated that renting was more affordable than paying a mortgage.
Tim Hyatt, head of residential letting at Knight Frank, said: “This is our most comprehensive national Tenant Survey to date and it shows the continued growth and expectation of what tenants want to see in the Private Rented Sector.
“The flexibility that renting offers has reinforced its popularity as both a sensible and accepted solution for young couples without children and those living on their own but also highlights an expected rise in older households over the next five years. The number of people renting out of choice rather than due to affordability of ownership constraints is an interesting indicator of how the PRS market will continue to thrive in terms of tenant demand.”