Why is the rental market shrinking?

This week Hamptons is predicting that by next year there could be 300,000 fewer rental homes in England than in 2016. New research from the agent blames rapid house price growth for reduced yields resulting in a level of landlord purchases that is below the numbers needed to replace the properties that are being sold.

Add to this the dash to list former AST rentals as holiday lets – more hassle but more financially lucrative while staycations remain in vogue – and the outlook for the supply of rental property looks bleak.

Hamptons figures show that the stock shortage in the private rented sector is three times as bad as in the sales market, with the number of homes to let down by a huge 46%. In 2021, they say, stock has been from 50% to 70% lower than in 2019 across every region of the country except London. With more than half of all homes advertised in recent months let within a week, it's no wonder that it’s so hard for people in many parts of the country to find a home.

So could build to rent step in and take up some of the slack? With schemes now increasingly being built out in smaller urban centres outside London, they certainly hold an appeal for renters looking for a high quality, low maintenance home with good amenities. Unfortunately, the sector is still small in comparison to the traditional BTL market, with BTR only accounting for 1-2% of all rental homes. So despite an estimated 50% more BTR homes being marketed this year than last, they won’t solve the problem.

Despite the expectation that rents will rise by an average of 2.5% in 2022 and yields forecast to grow, rising house prices make it unlikely that swathes of new landlords will come into the market in the near future. So sadly, Hamptons prediction that the private rented sector will be smaller in size by 2024 than it is today, looks likely to be proved correct.