What is the private rented sector?

Since the early 2000s, the UK’s private rented sector has grown, leaving many renters feeling overwhelmed and underserved. 

With over 2.7 million landlords renting out their homes to the public, navigating this market and finding the right rental property for your needs can be difficult. There is, however, hope and this text will look at the growth of the private rented sector, the reasons for it, and the future of the rental market in the United Kingdom.

We’ll also look at the “Build To Rent” (BTR) trend, as well as the appealing risk-return profile and resilience that attracts property investors to the private Rental Sector as there are some valuable insights that can be gained from the predicted future of the private rented sector, whether you are a renter or an investor.

What is meant by the Private Rented Sector?

So, what is even meant by the type of housing known as the Private Rented Sector? It is essentially when a landlord owns a property and leases it to a tenant.

This landlord could be anyone, from a private individual to a real estate company or institutional investor. As a tenant, you may deal directly with the landlord or with a management company or estate agency that manages the property for the landlord. That is what the Private Rented Sector is made up of.

What percentage of the UK is privately rented? 

In the UK, the percentage of houses in the UK who are rented out as part of the private rental market is 19% according to a study done here in 2019.

This is made up of 2.7 Million landlords who own homes they are renting out to the UK public where these landlords don’t necessarily live in the UK.

Number of households occupied by private renters in England from 2000 to 2022(in millions)

The growth of the private rented sector started in the early 2000’s and continues over time to where now over double the number of houses that are privately rented exist in the current market when compared to 2020.

The growth of the private rented sector

Between 2001 and 2017, over 125,000 properties began to be rented out privately. Some of which were previously council homes but some of which were built new and rented out for an investment by developers.

In general there is a push from the UK to provide more affordable housing of this nature and this is evident from help yo buy schemes and the government subsidising the purchase of brownfield land if there is the development of new housing.

However, it may be the case that this housing is still unaffordable to rent and those renting for the first time may need to have a guarantor even if they have good credit rather than bad credit.

What are the reasons for the growth of the private rented sector?

Many put the growth of the private rental market down to the fact that the government stopped building as much housing that was directly given to local councils.

As well as this there was the addition of the right to buy scheme which allows those renting council housing to buy after renting for a certain period of time.

These factors combined with the increase in the number of affordable housing being built that is available to rent out means there are more landlords and more people finding renting affordable rather than turning to the council for any accommodation.

What does the future of the Private Rented Sector look like?

In the future, the private rental market will likely change. However, there is a chance that the market will be able to have the same amount of

More people will live in the private rented sector

The private rented sector is predicted to become bigger in future and on top of this, the amount of private renters in proportion to the number in social housing will increase too.

Right now, about a third of all adults aged 35 – 54 are in the private rented sector and by 2035 this should become about half of those ages 35 – 54.

Affordable housing: accelerated by the crisis

As a result, the rental market in Europe has been shaped primarily by young people and those with low to middle-incomes. It’s interesting because the global financial crisis had a significant impact on this: it slowed economic growth and made it more difficult for people to find good jobs, which increased demand for rental properties. 

To complicate matters further, salaries in EU countries only increased by about 1.9% per year between 2014 and 2019, while housing prices increased by nearly double that amount, around 3.8% and ther eis an increase in legislation to protect tenants too. 

For example legislation states that all landlords should provide tenants with a how to rent guide even for short term rents

As a result, more people are opting for rentals rather than purchasing their own homes. And, with the COVID-19 pandemic causing all sorts of economic uncertainty, it appears that this trend will only worsen.

The increased popularity of build to rent

Build to rent, not to be confused with rent to rent, is a subsector of the rental market that is increasing in popularity. It’s interesting to see how the increased demand for people renting a property has caused developers to reconsider their strategies.

To meet this demand, they have been developing new rental properties on a large portion of their land. This method is known as “Build To Rent,” or BTR for short. And it’s not a small thing: over 30,000 rental units are in the works in Spain alone! BTR appears to be a trend that will only grow in popularity as we approach 2021 and beyond.

It all boils down to creating a sufficient housing stock that is specifically designed to meet the needs of people who prefer to rent rather than buy such as increasing the amount of housing that is furnished like build to rent that is easy to move in to.

New opportunities

When it comes to investing, there’s something really intriguing about PRS – or Private Rented Sector. It appears to have an appealing risk-return profile, especially when compared to other “risk-free” investments.

Essentially, the yield premium is higher, making it a more appealing option. What’s more, it’s proven to be a fairly resilient asset class in times of crisis. This is due in part to the fact that it is less volatile than some other investments.

Furthermore, there isn’t a lot of competition from other institutions in certain markets, which could be a great opportunity for investors looking to get in on the action.

But here’s the thing: if you’re going to invest in PRS, you need to make sure you’ve got everything in order. That means having the necessary operational capabilities to carry out the investment strategy.

This includes everything from locating properties to developing and effectively operating them. And it appears that large investors are catching on – investment managers, insurance companies, and even sovereign funds are all getting into the PRS game so it appears to be one of the biggest asset classes in the future!

What is a private sector tenant?

In contrast to renting from a social housing provider such as a council or housing association, a private sector tenant rents a property from a private individual or company.

Tenants in the private sector typically pay market rent and must negotiate the terms of their tenancy agreement with their landlord or letting agent. This is in contrast to social housing tenants, who typically pay lower rents and have greater tenancy stability, as well as additional support from their landlord or housing association.

What does a Private Rented Sector officer do?

A Private Rented Sector officer (PRSO) is responsible for ensuring that private sector housing within their jurisdiction is safe and suitable for habitation.

Their duties involve investigating complaints of poor housing conditions, which includes inspecting single dwellings and Houses in Multiple Occupation (HMOs) using the Housing Health and Safety Rating System.

In closing

In the United Kingdom, the Private Rented Sector refers to a type of housing in which landlords lease their property to tenants and the tenants deal with landlords or estate agencies that manage the property on their behalf. 

The increased demand for rental properties has prompted developers to build new rental properties on a large portion of their land, a practice known as “Build To Rent” (BTR), which appears to be a trend that will only gain traction as we approach 2021 and beyond. 

PRS are appealing to property investors due to their appealing risk-return profile, higher yield premium, and resilience during times of crisis. 

However, if you are a landlord, it is important to ask the right questions before renting to avoid mistakes to make sure you don’t do things like fall into rent arrears even though it appears there is a lot of demand.

So, be sure to do the proper right to rent check to make sure tenants are legally able to rent and check out the government advice here on renting in the private rented sector too.