Market Overview

The private rented sector with its close relationship to the housing market, offers the UK an alternative flexible solution to the challenges posed to some demographics in the UK by the inflation of house prices. With an ageing and growing population, the demand for housing currently outstrips availability. With property purchases being the largest singular investment made by most individuals, the private rented sector offers an alternative to those without the purchasing ability to step onto the housing ladder, as well as offering the work-force greater geographic mobility options.

With government strategy looking to diminish house price inflation and a willingness to develop more properties, the government is supporting Build-to-Rent developments with a £1bn fund and a housing guarantee scheme to guarantee the liabilities of borrowers’ developing new rental properties.

PRS Capital’s strategy is carefully designed not to only capitalise on the growth of the private rented sector, but also to work considerately with local areas to create sustainable and attractive developments.

Synopsis

The private rented sector has changed significantly over the last 20 years. It now comprises 18% of England’s housing stock compared with only 9% in 1991.The bulk of this increase has occurred in the last 10–15 years driven principally by the availability of ‘buy-to-let’ mortgages.

Sir Adrian Montague 2011-2012 * The government asked Sir Adrian Montague to undertake a review of the barriers to institutional investment in private rented homes. * Proposals included a task force to effect change and establish funds to promote private rented sector * Government create £1 billion build to rent fund and up to £6.5 billion of private rented sector housing debt guarantees, with the aim to encourage the construction of stock for private renting.
* Planning permissions or Section 106 covenants used to ensure that new homes remain in the rental sector for a fixed period of years.

Targets

• The government set a target of increasing the total housing output to 240,000 new homes per annum by 2016
• However this target would not be sufficient to meet the projected increase in households of 260,000 homes per annum
• This figure is on top of the existing backlog of demand for both social and market housing.
• Housing supply is limited, and is set to remain far below levels which can begin to address the structural undersupply of housing in the UK. While large-scale rental development will boost supply in this sector to some extent, the overall size of the private rented sector will still be linked to the movement of equity in the housing market.

Economic growth and the growth of the private rented sector

• As the economy starts to gain momentum, urban areas are where job creation is likely to be most robust. This increases the need for rental accommodation for a new generation of workers to add to those already in the private rented sector.
• Elevated house price to earnings ratio has acted as a spur growth in the private rented sector.
• The demand created by the difficulty in accessing mortgage finance has been another key feature of the market.
• The private rented sector has produced very good returns over the last 15 years or more by comparison with any other investment alternatives.
• Projected demographics are seen as underpinning long-term tenant demand while the lack of overall new supply is expected to continue, causing house price inflation rates to be maintained.
• The potential returns are becoming increasingly appreciated by new groups of investors with long-term investment horizons, including UK and overseas institutions.