Winds of change set to blow through the PRS

Win, lose or draw for the political hopefuls standing as candidates in the upcoming general election, it is likely that the new Members of Parliament will return to the House of Commons on Wednesday, July 10th. Ahead of them will be a new 5-year parliamentary term.

If it runs to the maximum five years, it will be the summer of 2029 – almost the end of another decade – before we go to the polls again.

Rishi Sunak’s Government (largely) left the private rented sector the way they found it. Despite breaking a manifesto commitment to end Section 21 (so-called ‘no-fault’) evictions, the Renters’ (Reform) Bill failed to make it through ‘wash up’ and was shelved before dissolution.

What was billed as ‘the most radical shake-up of the PRS in a generation’ has failed to materialise and is left to the incoming government to pick up the pieces…or not.

But that is only looking at the sector from the point of view of legislative change.

Major intervention

In reality, the PRS changed a lot during the last Government. Rents increased dramatically but so did interest rates, demand for rented properties rocketed but many landlords left the sector altogether, the compliance burden of agents and landlords has increased but technological solutions have been forthcoming to ease the burden and change the shape of the lettings industry.

But what will the next five years bring and what will the PRS look like at the end of the decade?

We may not have a crystal ball to identify all the details, but we do know the direction of travel. Unless there is a major intervention, there will be huge pressure on the dwindling supply of rental homes. There is also likely to be an increase in renters – some commentators suggest that 40% of London households could be renters by the end of the decade - with rents continuing to rise.

In short, the picture is complex and rather startling.

But one (currently very small) part of the sector continues to grow – Build to Rent (BTR).

According to Savill’s latest figures, (Q3 2023) there are 92,140 BTR homes in the UK – around 2% of the PRS.

But if you add the homes under construction and then add the number of BTR homes in the planning pipeline, the potential current size of BTR is 263,694 homes.

Total investment in 2023 was £4.5bn and demand for BTR is growing throughout the country – not just in London. In fact, 77% of the money invested in BTR last year was in projects outside the capital.

The fact is, households are increasingly choosing to rent – even though rents are at an all-time high. And official figures forecast that the UK will need a further 1m rental homes by 2030.

Convenient and easy

Is there a desire for a more flexible lifestyle? Will BTR be a significant part of the solution to the housing shortage?

Germany has over 2 million BTR apartments managed by institutional investors and, because many countries across the world are facing a housing crisis, BTR is being seen as part of the solution internationally.

So what difference does it make?

Essentially, the main difference between the traditional PRS and the BTR market is the customer. In times of high demand, the PRS is landlord-focussed, whereas BTR is tenant-focussed. BTR offers services like gyms, concierge, guaranteed parking, high-speed broadband. They want to make life convenient and easy for their customers by providing things like communications portals and, in our own case, deposit alternatives like our own No Deposit product, simply because tenants prefer it.

They offer warmer and greener homes, which are also more modern and tech-friendly. They are looking to build entire communities for young and old – some with apartment living and some in houses and bungalows. It’s already happening.

And competition between BTR providers is tough – so customer service is critically important in order to attract and maintain tenants. Operators are actively seeking new services to tempt their clients to stay. Which is why at flatfair we are seeing an increasing number of providers offering our deposit alternative. This is not to stay ahead of the competition, but to stay in line with the competition, as our deposit alternative is currently offered at 84% of live BTR homes.

The current number of BTR homes does not greatly impact the rest of the PRS…yet. But if the sector continues to grow and the market share begins to rise, then the traditional lettings sector will inevitably find that they are competing for the same tenants and will have to respond accordingly by offering unique and attractive solutions, such as deposit alternatives.

This is not to say it will happen overnight or that the new world will be here by the time we all go to the polls again in the Summer of 2029, but we can all see the way the wind is blowing.