The Future of the
Private Rental Sector
The WMBUS Landlords Conference
Kate Faulkner BSc(Econ) MBA CIM DipM
Agenda
• Impact of the recession on the
West Midlands PRS
• Expansion of the Private Rental Sector
• Risks and rewards of PRS
• Opportunities for landlords to work with Local
Authorities and Housing Associations
Understand future – need to
understand what’s happening now
The recession and impact on PRS
Reduce wealth, jobs, confidence
Prices fall, lenders panic and tenants struggle to pay rent
West Midlands Property Prices
Property Prices in the West Midlands
Land Registry data
West Midlands average
Highest average Lowest average
price achieved
prices fell to
2007/8
2009
£
137,671 £
113,283
Areas still recovering to 2007 heights
Solihull
Dudley
Coventry
Birmingham
Walsall
Wolverhampton
Sandwell
£
£
£
£
£
£
£
213,110
141,713
128,669
136,038
133,211
128,403
118,550
£
£
£
£
£
£
£
175,244
119,547
103,195
110,734
109,735
102,889
93,937
Percentage fall
from highest average price
to lowest average price
-18%
-18%
-16%
-20%
-19%
-18%
-20%
-21%
Fell at the same rate as other areas, even London
Midlands, North and Wales, slower to recover
But the PRS sector survived….
•
•
•
•
Reduced people’s confidence & ability to buy
Increased people’s need for mobility & flexibility
Increased the demand for rental accommodation
Increased the time tenants stay in the rented sector
– Reduces a landlord’s voids
• Demand for rental properties has increased
A poorly performing economy
effects tenants ability to pay rent
Unemployment rates can hurt PRS
Good landlords & LAs
work together to
reduce evictions
Office of National Statistics
Average earnings = rent they can pay
• UK gross disposable household income (GDHI)
– £16,000 per head in 2011
• West Midlands
– £14,400 per head in 2011
Impact of recession on rents
• Rent rises have to be ‘put on hold’
– Even if demand is higher than supply
– Well maintained properties go first
• Increase in tenant rent arrears
– Protect with insurance
• Rents underperform versus inflation
– Problem for those relying on rents for a pension
• Poor rental income growth & tenant arrears
– Can lead to lack of maintenance
– ‘Deals’ struck between landlord and tenant
• No maintenance, no increase in rent
Rents fell back in 2009/10
http://www.ons.gov.uk/ons/rel/hpi/index-of-private-housing-rental-prices/historical-series/
iphrp-article.html#tab-Rental-prices-in-England-and-its-regions--2005-2013-
Maintenance is critical to PRS success
• Example of a Victorian terrace over 15 years
–
–
–
–
£500 to £750 per year general maintenance
One new boiler:
£3,000
One new kitchen:
£4,000
Two new bathrooms:
£6,000
• Depending on state of property
– Re-wiring, damp proof course, new windows and/or roof
• Without regular maintenance
– Insurance company may not pay out
– Mortgage lender may question re-valuations
– Property is likely to rapidly lose value and incur higher
emergency costs
LHA caps hardly effected West Midlands
Source: Shelter
LHA Rates similar to PRS
Two bed
Three bed
£460 per month
£511 per month
LHA Rates similar to PRS
Two bed
Three bed
£511 per month
£550 per month
LHA Rates similar to PRS
Two bed
Three bed
£638 per month
£741 per month
Summary of the recession
•
•
•
•
•
•
Helps explain the ‘risks’ of buy to let
Potential 20% fall in capital value
Potential 5-20% fall in rents
Demand goes up
Be careful not to let maintenance standards slip
Local authorities who understand PRS can help tackle
recession issues with good landlords
– And landlords can secure a good income
• Can secure 6-8% yields on LHA rates
Future of PRS in West Midlands
West Midlands population changes
• England 27% growth versus 20% growth in W. Midlands
Estimated 16%
increase in
households
Check supply versus demand
Supply increases can affect PRS rents
Birmingham City Council
Property prices still to recover
Property prices need to recover
Property Prices in the West Midlands
Land Registry data
West Midlands average
Highest average
price achieved
2007/8
£
137,671
£
115,359
-16%
Areas still recovering to 2007 heights
Solihull
Dudley
Coventry
Birmingham
Walsall
Wolverhampton
Sandwell
£
£
£
£
£
£
£
£
£
£
£
£
£
£
190,994
120,718
107,827
114,457
106,313
99,534
92,125
-10%
-15%
-16%
-16%
-20%
-22%
-22%
213,110
141,713
128,669
136,038
133,211
128,403
118,550
Average price
for September 2013*
Average Sept price
vs Highest average price
*Will be adjusted over next 3 months
Year on year Month on month
change in price change in price
in Sept
in Sept
1.3%
0.3%
-0.4%
2.4%
-0.9%
2.6%
0.4%
-0.3%
-0.2%
Definitely some bargains still to be bought
Potentially good rental yield opportunities 8%+
Savills forecast 11% rise to 2017 in Midlands
0.6%
-0.3%
-0.3%
0.5%
-0.9%
-0.1%
1.8%
Unemployment rates on the decline
National average
is 7.7%
Beware of
interest rate rise!
Rates back to 5-7%?
Office of National Statistics
Future rental trends
• More people are selling up and renting in retirement
– West Midlands has quite a young population
• More single adult households
– Average household size almost halved since 1911 (four to two)
– West Midlands size 2.6
• Tenants want a ‘home’, not a temporary place to stay
• Estimated PRS will grow by a 20% to 2017
– Help to Buy unlikely to impact on PRS
– Cultural change, not just affordability
Risks and rewards
Controllable
Capital growth
No Control
Life events
Rental income
Prices & rents
Equity level
Interest rates
Gross &
net income
Exit
Inflation
Government/LA
Opportunities of work with
West Midlands Local Authorities
Why I rent to my local authority
•
•
•
•
Flat in Reading
Invested because of my husband’s job
He is now home based
We had a choice
– Rent privately and maximise the rent
• Have all the risks associated with voids, non-payment
– Rent to a Local Authority, cover our costs
• Be paid directly
• Have fewer, if any, voids
What can they offer you?
•
•
•
•
30,000 potential tenants on a waiting list
Help to identify needed properties
Help and advice on the 100+ legals to let a property
MLAS accreditation
– Cost effective workshops
– Direct communication with LAs
– Access to individual LA “deals and discounts”
• Help ensuring you get paid
– Direct payment
– Tenant Credit Union Accounts with direct debits
What do they need in return?
• Accredited by MLAS
• Decent homes!
– Youngsters like new builds
– Older tenants need one beds
• Great EPC ratings
–
–
–
–
No condensation or damp
Potential LA incentives or green deal
Lower bills = more can afford rent
Can still legally rent it out in 2018
Summary
• PRS is expected to grow
– Culturally acceptable
– Bargains while prices recover
– Rental income can be protected through LHA
• Manage PRS risks and rewards
• West Midlands LAs
– Want to work WITH landlords
– Offer free help & advice
• Latest legal changes to what tenants need/want
– Variety of schemes to secure your portfolio success