There is a great deal of doom and gloom about the rental market at the moment, with many landlords having taken significant rent cuts or finding themselves with tenants who have got seriously into arrears. Where the private rented
sector is concerned, the government response to the crisis has frequently been muddled and indecisive, and looming legislation in the form of the Renters’ Reform Bill is potentially going to make life even harder for law-abiding landlords. Many buy-to-let landlords in particular have been wondering whether to sell up and get out of the game while property values are booming.
But is the situation really as bad as all that? Given that many parts of the economy have taken a pummelling, are landlords doing worse than most? Is it time to get out before things get worse, or hunker down and ride it out?
What’s the current state of the private rented sector?
Part of the trouble is that it’s never easy to get a clear picture of the rental sector. The data available is almost always released by organisations with a clear agenda – whether they’re tenants’ rights campaigners, industry bodies or estate agents. Even when the research is genuinely aiming for a balanced picture, many landlords and tenants will remain hidden, for example when the landlord only has one self-managed property with a long-standing tenant.
That said, tenant and landlord organisations are both concerned about the current state of the sector – specifically around the vast arrears that have built up. Housing charity, Shelter, has cautioned that ‘Gaps in the safety net are widening [and] there is not enough support for renters to help them pay off their rent arrears,’ while the National Residential Landlords Association has reported that delays in processing repossessions are meaning that some tenants have built up rental arrears of more than a year, leaving both themselves and their landlords hugely in debt. An alliance of organisations from both sides is calling for urgent government action, claiming that ‘at least half a million private renters are in arrears due to the Covid-19 pandemic.’
The independent research that exists seems to corroborate this. A February 2021 report from the Resolution Foundation found that ‘housing arrears have grown steadily over the crisis’, fuelled by significant inequalities between renters and homeowners (for example, 24% of working-age private renters have seen a drop in income during the pandemic, compared to 16% of homeowners). The report found that 6% of tenants in the private rented sector were behind with their rent, which translates to hundreds of thousands of families.
Even the Ministry of Housing, Communities and Local Government (MHCLG) has weighed in against the government’s current approach, releasing a damning report that noted:
‘The Government appears to lack a clear strategy to deal with rising rent arrears. We are very concerned that the Government is waiting until there is a clear crisis emerging before intervening, rather than heading off a growing rent arrears crisis by taking proactive action to protect people in this country.’
The MHCLG has suggested that a package of aid and legislative measures for the private rented sector costing around £300 million could save the government paying out significantly more money in homelessness aid in the long-run.
What lies ahead for the rental market?
The immediate future of the private rented sector will depend very much on how far the government heeds the calls above. Various organisations have suggested different solutions to the problem, but most seem agreed that a robust scheme of government-backed loans and serious improvements to the benefits system should help stabilise the sector.
This still leaves the question of whether the lettings market is at the beginning of a serious and sustained decline, and a major factor in this could be the current state of property sales. After a 2020 boom, house prices have become seriously over-inflated, and while this isn’t necessarily a problem for people already on the property ladder, it has made it harder than ever for so-called ‘Generation Rent’ to get a foot in the door of their first home. Add to this the fact that 80% of redundancies from salaried posts in the past year were among the under-35s, and younger people are facing a situation where many will need to be living in rented accommodation much longer than previous generations. Some young people may have moved back in with their parents during the pandemic, but the hope is that they will move out again if and when their employment prospects pick up, hopefully driving demand for the decent budget-to-mid-range accommodation that private landlords can provide.
In it for the long-haul
In pragmatic terms, it’s important to remember that property and rental values are assets that can go down as well as up – it’s just that we’re so used to growth that we sometimes forget that. In a year that has been catastrophic for so many businesses and individuals, it’s not unreasonable that some landlords should be feeling the pinch as well. By the same token, many landlords are essentially small businesses providing a key service and they shouldn’t be expected to carry the can while everyone else is being supported. While nothing is for certain these days, those landlords with the nerve and resources to wait it out ought to see their business improve again in due course.
The Covid-19 pandemic has also provided some interesting, often anecdotal illustrations of how our private rented sector performs under sudden economic stress. Bad tenants have behaved worse, exploiting emergency protection measures to their advantage. Bad landlords have behaved likewise, exploiting economic vulnerability to displace established tenants in search of higher rental yields. But in the middle there have been a whole lot of landlords and tenants who have found compromises during difficult times. The pandemic has emphasised the value of finding and keeping good tenants, and that’s a lesson that many landlords can take forwards into whatever the future holds.