Yorkshire property expert and partner at Zenko Living, Jonathan Morgan, told the Yorkshire Post about a profound shift towards long-term renting and how the public’s perception of housing is evolving.
The Housing Act of 1988 and the Dawn of “Buy to Let”
The Housing Act introduced in 1988 was somewhat of a game-changer for UK property investors. This legislative act allowed landlords to reclaim possession of their properties, creating an environment ripe for “buy to let” purchases. Public interest was piqued, with people seeing residential property as a promising means of supplementing their retirement incomes, or even making a fast fortune.
The buy-to-let trend mushroomed throughout the 1990s, and remained strong until 2007. However, growth halted abruptly with the onset of the global financial crisis. Looking back on the boom period between 2000 and 2015, an estimated 1.7 million buy-to-let loans were dished out.
Breaking Down Barriers to Institutional Investment
Fast forward to 2012, and Lord Montague was tasked with writing a report investigating factors hindering institutional investors from stepping into the UK private rental sector. His report was enlightening, setting out clear recommendations to facilitate these potential investors.
Among the most influential recommendations was his proposal to establish a Private Rented Sector (PRS) task force. The goal? With the backing of the government, to dismantle obstacles and drive a shift to a more regulated, higher quality rental market in the UK.
A Shift Towards Renting and the Rise of the Build to Rent Stock
As the saying goes, the rest is history. The scene was set for a migration towards renting, and institutional investment has found a new, lucrative home in the build to rent sector.
The levels of growth in this sector are nothing short of remarkable. In 2015, the UK’s build to rent stock started at zero. Yet, by the end of 2022, we saw a surge to 78,700 completed homes, with a further 50,500 homes under construction. The industry attracted a whopping £4.3bn investment into the sector throughout 2022 alone.
Shift Towards Single Family Rental
Explosive growth in the Build to Rent (BTR) sector has provided better quality, professionally managed, amenity-rich apartments around the country. That said, the Single Family Rental (SFR) concept has started to generate increasing interest and investment.
While it’s still early days for the SFR market, there is a widespread belief that investment in houses for long-term rent might outshine even the remarkable successes of the build to rent apartment sector.
The demand for SFR properties is also fuelled strong headwinds against the UK’s homebuilders. The termination of the Help to Buy scheme — which backed 375,654 purchases during its decade-long existence —along with rising interest rates and high inflation, have seriously challenged the industry. Institutions keen on stepping into the rental market may have the key to addressing the looming disparity between supply and demand.
Shifting Perspectives on Home Ownership and Renting
Traditionally, the allure of home ownership stemmed from three main factors: we equated it with social respectability, we sought the security it offered, and we relished in the equity we would inherit once the mortgage was fully repaid.
However, the property market’s ongoing transition is causing a notable shift in public sentiment. Renting — previously seen as a mere stepping stone before home ownership — is increasingly being viewed as a long-term option.
Factors such as the rise in the average age of first-time homebuyers and the availability of high-quality rental properties mean that more people are choosing to rent, and for longer periods. Consequently, long-term renting is becoming more socially acceptable.
A growing number of people are choosing to stay in rented properties for up to five years, especially in bustling city centres. Longer tenancy terms are pushing back against the stereotype that renting is temporary.
Reconception of Renting as a Long-Term Option
Our persisting infatuation with owning property for long-term wealth accumulation may take longer to dislodge. The perception of rent as “dead money” is deeply ingrained, despite the reality that equity tied up in a home is often inaccessible, unless through equity release or downsizing.
Furthermore, most homeowners never actually cash in on this equity; they hold onto their house until they pass away, leaving the property behind. The wealth supposedly amassed through home ownership often remains unrealised.
As renting becomes increasingly acceptable, and longer tenancies become commonplace in institutionally owned properties, the perception of home as an investment will need to change. If future generations are to lean into long-term rentals — possibly for a lifetime — we must redefine our relationship with the concept of homeownership. And that isn’t necessarily a bad thing. It’s just different.