The former president of ARLA Propertymark, Greg Tsuman, has expressed concern that recent government reforms and the possibility of higher Capital Gains Tax have unsettled the private rental sector.
Tsuman, who is also a director of lettings at Martyn Gerrard agency, emphasised the need for the government to take steps to retain landlords in the market. He argues that reversing Section 24 of the Finance Act, which disallows mortgage relief for landlords, would be a crucial move. According to Tsuman, this policy unfairly taxes landlords even when their tenancies are not profitable, unlike other businesses.
The impact of recent policies is most noticeable in London, where many landlords have loans secured against their properties. This situation is pushing landlords to sell, increasing competition among renters and driving up rents, which may prompt government intervention through legislation like the Renters Rights Bill.
The Renters Rights Bill also raises concerns among landlords due to its unclear provisions on evicting tenants who are disruptive, consistently late with rent, or abusing the system. This uncertainty could leave landlords with problematic tenants, leading to financial losses that are likely to be passed on to future tenants in the form of higher rents.
Tsuman’s comments followed an analysis of the latest Zoopla data, which reveals that annual rental growth for new lets is currently 5.4%. This is half the rate of growth from a year ago but still above the average earnings growth of 5.1%. As of July 2024, the average rent is £1,245 per month, an increase of £63 from the previous year.
The rental market is challenged by a shortage of supply, largely due to reduced investment by private landlords. While the number of homes available for rent has increased by nearly 20% compared to last year, it remains 24% below the pre-pandemic average. Despite a decline in rental demand due to falling mortgage rates and reduced migration, there are still 21 people competing for each rental property, more than double the pre-pandemic level. This competition continues to drive rental inflation.
The portal reports that the lack of new investment in private rented homes has led to a shortage of available properties, which has driven up rents significantly over the past three years by 30%.
Tsuman adds, “The increase from 17 to 21 potential tenants per rental property this month may be partly due to concerns about proposed changes to Capital Gains Tax and the new Renters’ Rights Bill. Although the Bill’s proposals may not directly threaten landlords, the uncertainty they create is causing many landlords to consider exiting the market.”
“Overall, I would caution that if the government does not introduce balanced policies to support both renters and landlords, we might see the ratio of renters to rental properties rise significantly. This could bring us back to the historically high levels observed in November 2022, when there were 45 prospective renters for every available property.
This increase in the number of renters per property is concerning. For context, in 2017, prior to the implementation of Section 24 of the Finance Act, the ratio was much lower at just 3 renters for every property. The sharp rise in this ratio since the introduction of Section 24 highlights the impact of this policy on the rental market.
The current situation suggests a looming risk where renting could become a privilege for a select few, while others face long waiting lists similar to those for social housing. Such a scenario would not only exacerbate housing inequality but also strain the rental market further.
We must take action to avoid a crisis where people are left with limited options, possibly ending up in temporary housing or even facing homelessness. Ensuring balanced support for all parties involved is crucial to maintaining a fair and functional rental market.”
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