RESEARCH: No growth in rental sector for nine years
Zoopla Executive Director says the number of rental homes has been stuck at 5.5m since 2016 when George Osborne's buy-to-let tax changes hit.
The private rented sector stopped growing in 2016 when tax changes shifted the business model and has since remained at around 5.5m homes, with landlords buying offset by landlords selling, according to Richard Donnell (pictured), Executive Director at Zoopla.
However he writes: “There has been no exodus; the people selling are smaller landlords who didn’t see buy-to-let as a business; 40% of landlords bought their first property to live in.
“House prices have underperformed in recent years, but higher rents have helped cover rising costs and pushed yields higher.
Consolidation phase over
“The catalysts for those selling,” Donnell adds, “have been tax changes, rising property running/repair costs, greater regulation around licensing and higher mortgage rates, which have resulted in lower profits/cashflow, with the threat of more to come. Most buy-to-let landlords are aged over 60 years old and are sitting on big capital gains.
“The sector is coming to the end of a multi-year consolidation phase as small landlords leave and bigger landlords consolidate portfolios with a focus on modest leverage and cash flow.
50% of the private rented sector is owned by 20% of landlords.”
That means, he says: “50% of the private rented sector is owned by 20% of landlords with the largest portfolios. Small one-property landlords have shrunk from 80% to less than 50%, and 40% of landlords have no mortgage/borrowing.
“Increased borrowing in Q4 2024 is down to global uncertainty and weaker equity markets, with residential coming back into the thinking of cashflow-focused landlords.
“It didn’t really stop, but the sector needed to consolidate after more than doubling in size between 2000 and 2016, where the motive was leveraged capital growth-driven returns.
And he concludes: “Those days are now over; there are areas of value in the market where yields are higher. Canny investors will be seeing opportunities in the market, with more homes for sale than over the last seven years, which explains why we have seen an increase in borrowing.”
