The rise of an increasingly unpredictable market

Property has long been a safe investment. Before the downturn in 2008, sellers were able to gain a healthy capital return. 

Post-economic crisis, we saw sellers cut prices to make a sale or let to protect their investment. Either way, we saw a rise in first time landlords and a growth in the Private Rented Sector (PRS).

2016 is already seeing significant changes in the industry which means the PRS is less predictable.    

The role of the letting agent must therefore evolve to lead and facilitate sector growth.  

In recent months we have seen a number of conflicting findings on the state of renting and the property industry as a whole. 

According to the latest English Housing Survey, private renting levels have fallen whilst home ownership increased slightly. 

Interestingly, a separate report from the Residential Landlord Association found that private rental tenancies are getting longer. 

With changes such as new stamp duty rates coming into effect next month and schemes like ‘Help to Buy’ becoming increasingly popular, we can expect further shifts in these trends. 

This shifting environment brings a challenge to investors and letting agents alike yet the macroeconomic picture still puts the PRS in a healthy long term position. 

The on-going impact of the recession, rising house prices and subsequent rise of ‘generation rent’ means that buy-to-let remains a strong investment option. 

The housing shortage, particularly in major cities, is also driving renter demand. In fact, a survey from The House Crowd last week found that 60% of landlords questioned believe that the sector will continue to be profitable as the housing shortage continues. 

As demand grows, the evolving needs of renters are driving competition amongst agents to secure quality lets at affordable prices. 

The risk of landlords selling their properties amidst growing uncertainty will only add to this competition. 

Letting agents can and should play a role in protecting rental property stocks by engaging with landlords to improve their understanding of the real risks and opportunities to remove any unwarranted fears. 

While the PRS remains a strong investment, both landlords and letting agents need to be smart in their decisions. 

Agents have industry insights at their fingertips – they (should) know what types of properties are in high demand, what local renters are looking for, how much they are willing to spend and what markets provide higher yields. 

By sharing local market insights with potential or existing landlords looking to invest, agents can make a three-fold impact on the sector: 

- Improve access to and maintain a property portfolio that meets needs of tenants
- Secure healthy rental returns for landlords
- Support long term successful relationships with both tenants and landlords

By spreading their wealth of knowledge, agents can contribute to the growth and stability of the PRS, especially as the industry continues to evolve. 

Recent trends in particular demonstrate exactly why short termism is not therefore the best approach for letting agents concerned about their strategies for growth. 

Rising rent costs and housing stock shortages means flat shares comprise a huge percentage of the PRS market. There is also a rising preference among renters for longer tenancies, particularly from families. 

The average length of residence for families has risen to four years (from 3.5 years 12 months ago) according to the Residential Lettings Association. As demand for flexibility, quality and convenience grows, more people are seeing renting as a longer term alternative to buying. 

Addressing renter demand and opting for larger properties with a longer tenancy will help both agents and landlords weather the unpredictable nature of the current environment and reap rewards in the long term. 

The flexibility and convenience of the PRS, as well as its ability to constantly evolve to meet changing needs, is why the case for investing in the sector is so strong particularly as renting is predicted to increase in every region of the UK in the next ten years, according to PwC.

What’s clear is that the industry will continue to shift but this shouldn’t discourage investors. 

By being a step ahead, letting agents can help inform smart decisions, continue to meet renter needs and contribute to sector growth as well as safeguard their own growth objectives.  

*Ivor Dickinson is Regional Chief Executive of Lomond Capital