Member Article

Huge investment needed in private rented sector

The latest Residential Property Focus produced by Savills outlines the huge investment needed to create enough private rented homes to accommodate the upsurge in tenants.

In the last [report](http://www.savills.co.uk/contact/research-results.aspx?keyword=Residential Property Focus&date=&country=&page=1) experts predicted that one in five households will be in the private rented sector by 2016 and now it’s been announced that £200 billion investment is needed in the next five years to meet demand.

Renting is becoming the new buying as mortgages remain unobtainable for the majority. And tenants are staying in their properties longer – a quarter of tenants are now over 40.

With only £50 billion expected to come from buy-to-let loans, the question is where the further investment will come from. The likelihood is that large organisations and institutions will take a lead and purchase and develop properties purely for the private rented sector.

If these institutions do pick up the investment gap it’s hard to know how the market will be affected and what the impact will be in different areas of the country.

Will the investors look to make their return from high yields or will they be searching to purchase or build properties where capital appreciation will mean they can sell for profit.

In the North East, rental yields are among the highest in the country. The Savills and Rightmove research revealed that the average gross yield on a two bedroom property in the North East is 6.2 percent, with only the North West topping that figure at 6.3 percent.

If investors look for yields then the North East is in a strong position and tenants may find they can locate private rented accommodation reasonably easy.

However, these large institutions may look to invest in areas where they feel they will be able to sell and make their money back in a relatively shorter timeframe. If that is the case then the North East – which traditionally doesn’t experience the extreme spikes in the property market like some other areas of the country – may not be an appealing area for investment.

The other big unknown, which harks back to my thoughts on last month’s news involving Newham Council, is will these large institutions be socially responsible and cater for local housing allowance tenants.

With unemployment remaining high and the North East particularly not set to recover in the foreseeable future, the demand for social housing is only set to grow.

There are so many factors which could affect the way the private rented sector moves that it’s difficult to guess or predict how things will be in five years time.

Nonetheless, what all the research is telling us is that investment to increase the availability of rented property in England is a necessity.

Ajay Jagota

MD, KIS Lettings

This was posted in Bdaily's Members' News section by Ajay Jagota .