In July, shortly after the UK general election, the boss of Zoopla, Charlie Bryant, declared that being a private landlord in Britain made little financial sense with tax rises, red tape, and sustained mortgage costs all contributing to many looking to exit the sector.
Bryant is not wrong, and further clouds have gathered on the horizon since then with hikes in capital gains tax being mooted for the upcoming budget; a move which would further impair a profitable exit route from the rental sector.
The market is already reacting. Recent data indicates that more than a third of the residential property currently for sale in London was previously rental accommodation. Indicating that many buy-to-let owners are giving up the ghost of being a private landlord.
There may be a silver-lining for the commercial property sector. Soundings from specialist commercial property auction house, Acuitus, report that an influx of new ex-buy-to-let investors are entering the commercial space, being attracted by generous yields and the prospect of a sustained bounce back in values.
Still, there is the question of who will replace the loss of private landlords, especially if the supply of available rental properties becomes further constrained.
The solution might be near at hand – namely from the institutional market.
Earlier this year, the global head of real assets at Legal & General Bill Hughes called for a radical overhaul of the UK rental sector, putting the case forward that too many buy-to-let landlords provided substandard homes for renters and should be replaced by large institutions.
Hughes’ criticisms are not far from the mark. The dysfunctional nature of the private rental sector is regularly in the news as illustrated by the recent allegations against Labour MP, Jas Athwal, (the largest HMO landlord sitting in the House of Commons) that many of his rental properties were well below acceptable standards.
Only last week, we saw news from the institutional market of increasingly large amounts of capital pouring into the build-to-rent BTR sector with the pension fund Nest, which has assets worth £43bn, announcing its intention to invest up to £1bn in BTR properties alongside L&G and PGGM.
Such a commitment is a signal that the institutional market is serious about the longevity of the BTR product, with some £4.5bn was invested into the market last year, the second-highest level on record.
What has yet to be seen is how exactly institutional providers will provide affordable assets across increasingly diverse demographics, especially those on lower incomes. So, while a solution may be coming down the tracks, there are still many questions about how exactly it will be better than the old system.