Are landlords selling up?

Discussion in the housing sector continues to abound on whether the rocketing rents and supply/demand imbalances we are seeing for renters across the country are the fault of a mass exodus of landlords from the sector (and secondarily whether this is the fault of ‘over-regulation’).

Clearly, there are real issues with supply/demand imbalances going on across the UK, with the average number of requests to see each home more than tripling since 2019.

In London, it appears the situation is particularly bad.

According to some, half of all London landlords recently tried to sell.

The National Residential Landlord Association has jumped on this narrative of ‘landlords selling up’ and is using it as a prime lobbying point against further regulation in England, Wales and Scotland.

Given the stakes here then, understanding whether the landlord exodus is real is essential to understanding what policy measures to deploy.

Here at Marks Out Of Tenancy, we have trawled the available data to see what we could find.

The landlord exodus narrative goes something like this:

Tax changes on rental income in 2017 have damaged landlord profits. Rising costs on things like buildings and maintenance have hiked landlord’s costs alongside rocketing interest rates impacting buy-to-let mortgages (57% of all landlords have one). Equally, rising interest rates have made other savings options more attractive than investing in property for the first time in many years. Savills data argues that profits are at their lowest for landlords since 2007 (obviously ignoring asset windfalls).

The pandemic, overheated the housing sales market (driven by consumer demand and stamp duty cuts) and a drop in demand from renters (as they returned to family homes or delayed moving out). It appears a chunk of rental properties thus switched tenure from PRS to owner-occupier.

We have written elsewhere on the site about the recent boom in flipping properties to holiday lets 

It also appears we could be in the midst of a ‘great landlord retirement’. Savills research reveals 1.9m  properties are owned by landlords aged over 65, with a further 1.9m properties owned by landlords aged between 55 to 64.

The NRLA also argues that investment in new properties has also dwindled alongside landlords selling up.
 

So, all seems quite compelling.

However, a lot of official data isn’t backing up these assertions. Capital Gains Tax (CGT) receipts should reveal how many landlords are actually selling up their homes. Yet The Times argues that the annual number of landlords paying CGT has only increased from 11,000 to 13,000 (out of 2.5 million landlords). Additionally, the property portal Rightmove reported that 16 per cent of its listings for sale were formerly rentals, only 3 percentage points higher than in January 2019, while the number of properties to let are actually up 8 per cent.

Equally, government’s across the UK seem unconvinced. Despite the supply/demand imbalances being particularly bad in Scotland at the moment – and their 2017 version of the Renters Reform Bill measures being blamed for it – the Scottish Government argues that on a review of official data (including their universal landlord register) data “there is no strong empirical evidence at present to substantiate the anecdotal claims from some that landlords are leaving the sector.”

This question of whether regulation is driving landlords out the sector is key. Yet again, this assertion is not always the most convincing. Writing in their Impact Assessment of the Renters Reform Bill, DLUHC said, “The available evidence to date strongly suggests that similar reforms to abolish section 21 in Scotland have not impacted supply, nor changes introduced by the 2019 Tenant Fees Act, despite concerns that they would. The most recent English Housing Survey data shows the proportion of PRS households has remained relatively stable since 2013-14, suggesting that there has been no significant impact on supply to the sector from various reforms.”

Furthermore, whilst it is fair to say that during the pandemic there was a swathe of new regulations introduced on the PRS, the vast majority were temporary and have fallen away. The same supply/demand imbalances are happening across all four nations of the UK, with radically different regulatory systems in place – and England hasn’t had any new significant regulations introduced since the 2019 Tenant Fees Act. Whilst concerns about the Renters Reform Bill, Decent Homes Standard and Minimum Energy Efficiency Standards are raised by landlord-bodies – in reality all of these regulations are several years away from implementation (something we have discussed elsewhere on the site). So selling up now on the basis of these seems odd?

So perhaps instead, we need to investigate the spike in demand for the PRS?

On the demand-side, those living with family during the pandemic have since joined the PRS en-masse, Generation Rent puts the figure as high as 300,000 additional renters.

In addition, clearly high net migration and massive spikes in university recruitment have had an impact.
Purpose-Built Student Accommodation development has stalled since the Cost of Living crisis due to high-build, financing and operating costs – pushing more of these students into the PRS.

Propertymark (trade body for letting agents) has data showing that tenants per branch has risen from 64 to 118 since December.

So, in summary, a few things seem clear. There may be a contraction in the number of PRS homes available – but the data remains patchy – and it doesn’t seem like regulations on renters rights is a leading cause.

What is much more evident, is that we are in the midst of a demand-based shock that is driving  conditions down and rents up all around the country, including in Southwark and Lambeth.

For policy-makers and tenants keen to rebalance the scales of power, but perhaps nervous about increasing regulation, what is most clear is that Marks Out Of Tenancy is a regulation-free initiative that can help rebalance the power between landlord and tenant.