Should developers focus on rentals?

Fortitudo Property Development Specialist Richard Carr questions whether developers should focus their attentions on rental accommodation following recent research?

Accountant analysis

Richard Carr Buy to Let home

Should developers focus on rentals?

According to Pricewaterhouse Coopers the amount of people renting property in the UK could be higher than the amount with a mortgage by 2025.

This is on the back of their prediction that the average house price with rise to a staggering £360,000.

What does this mean for developers though? Should their short, medium and long term focus now be on creating properties that are suitable for rental? However, if house prices do rise, their mark-up will be higher, but only available to a smaller market.

Prices up – ownership down

The analysis by the accountants shows that UK house price growth is expected to rise by 5% per annum over the next five years. The average house price in 2015 is around £279,000, by 2020 it would be somewhere in the region of £360,000.

Prior to the financial crisis of 2008, the total UK owner occupation rate peaked at around 70%, to 60% by 2025.

As house prices have risen faster than earnings, the number of households in the private rented sector has more than doubled since 2001.

PwC expect 1.8 million households to become privately rented by 2025; taking the total to 7.2 million in the UK – almost one in four.

Generational

“Driven by a decade of soaring house prices pre-crisis and lower loan to value ratios post crisis, the deposits needed by first time buyers have risen significantly. As a result, a generation of private renters have emerged and this will increasingly be the norm for the 20 to 39 age group,” said Richard Snook, senior economist at PwC.

“There is also a rising dichotomy in the market between those, mostly older, households who own outright and those, mostly younger, households who still have a mortgage or rent to pay.

“Overall, we project that the proportion of owner occupiers, with or without a mortgage, will decline from its peak of around 70% in the mid-2000s to only around 60% in 2025. The long rise in the UK owner occupation rate in the post-war years seems to have gone into reverse.”

Richard Carr believes that this current shift is being taken care of by the ‘Buy to Let’ market and that the Government must not curtail this important part of the sector, as it is satisfying demand.