Budget cuts means higher rent and increasing rentals
There will be a strong reliance on the private sector to provide new properties for rent in the UK in the aftermath of the government’s spending cuts announcement, according to industry experts.
Andrew Stanford, Head of Cluttons’ Residential consultancy division, said that the intention to fund the development of 150,000 new homes between now and 2014/5 represents only a small increase.
‘It is therefore apparent that there will continue to be a strong reliance on the private sector for the delivery of new homes, to meet the projected need of 240,000 new homes per annum to keep up with household formation. However, development funding for residential schemes is substantially more limited than has been the case over the last decade and it is therefore very unlikely that the overall delivery of new homes will reach the average for the recent past let alone the stated need. The announcements today will do little to change this situation,’ he explained.
He believes that rents will increase 13.3% this year and will average 5.4% until 2014, well ahead of even the more pessimistic forecasts for inflation. He also points out that the persistence of mortgage lending constraints will expand the cohort of households to whom homeownership will not be an option, and for whom renting will be viewed as a medium to long term necessity.
‘An expansion of the provision of housing for rent will be dependent on the private rather than public sector for all but a small minority of very disadvantaged families. Given the finance challenges, it is unlikely that small-scale buy to let landlords will be in a position to fill this gap,’ he explained.
‘This will have a substantial impact on the options available to households going forward. The Government is looking for innovative funding structures, such as bond issues, in order to deliver new homes to house those on lower incomes. But given the economic environment in which we are embarking, there will be a far wider group of households who will be struggling to secure mortgage finance to buy their own homes, a fair proportion of whom would not be considered low income by any statistical measure,’ he added.
The Royal Institution of Chartered Surveyors is warning that when the property sector hurts, the whole economy hurts more. ‘The Government is gambling with the economy by reducing Communities and Local Government capital spending by 74% over the next four years. This will have a significant effect on housing supply, especially social housing, which is already at historically low levels. As well as reducing the number of affordable homes this could have a wider impact on the housing market where continued low supply will create affordability issues, particularly for first time buyers,’ said Mark Goodwin RICS director of external affairs.
David Salusbury, chairman of the National Landlords Association, warned that without measures to encourage private landlords to invest in their rental portfolios it is hard to see how the private rented sector will be able to expand to meet increasing demand.
Ian Long, director of St Trinity Asset Management, said that it is inevitable that thousands of households will come intense financial pressure over the next four years, which will push up mortgage arrears and repossessions.
It is also a dire time for first time buyers, according to James Moss, director at Curzon Investment Property. ‘With social housing drastically cut back, there will be even more demand for private housing at a time where practically nothing’s being built because of the government’s nimby planning laws. This false economy where supply is restricted will push prices up – in full contradiction of what the housing minister has promised,’ he said.