Private rented sector

The Private Rented Sector (PRS) is a classification of United Kingdom housing tenure as described by the Department for Communities and Local Government, a UK government department that has amongst its remit the monitoring of the UK housing stock.

Other classifications are:

• Owner-occupied
• Rented from registered social landlords (housing association)
• Rented from local authorities

The private rented sector consists of 2.7m dwellings in the United Kingdom or 10% of the total housing stock. Of this total, 2.4m are in England, representing 12% of the English housing stock. The sector has grown by over 10% in the last ten years and, according to the Centre for Economics and Business Research, is forecast to grow by a further 40% over the coming ten years .

History of the private rented sector

For the greater part of the 20th century the private rented sector was in long-term decline. The combination of growth in owner-occupation and the role of the state as a landlord, through local authority housing and latterly the Housing Association movement, contributed to a decline in the private rented sector (PRS).

Rising prosperity and pro home-ownership Government policies brought owner-occupation to its peak in the 1980s, whilst reducing the private rented sector. During this period owner-occupied dwellings rose by 24% whilst the private rented sector contracted by 10%.

Growth in the PRS was inhibited by a regulatory regime that discouraged landlords . Regulated rents reduced returns and tenant legislation limited the landlords' right to recover their property from a defaulting tenant.

Regulatory change

This long-term decline was arrested by the Housing Act of 1988. This introduced a radical reshaping of landlord - tenant law, and in particular introduced the Assured Shorthold Tenancy (AST). This arrangement made the contractual relationship between landlord and tenant clearer and allowed landlords to recover their property relatively easily from a defaulting tenant. (However, the process still often requires recourse to the courts for a Possession Order. In addition a local council may deem that defaulting tenants who leave before the court bailiffs are sent in have made themselves voluntarily homeless and refuse to house them, causing further difficulties for landlords. This provided a platform from which the sector could grow. The growth was met by tenant demand as improvements in the quality of the stock made renting a viable option.

More recently, legislation requiring the licensing of houses of multiple occupation and the tenant deposit rules has not reversed the inequality suffered by Landlords and are often ignored by tenants due to the lack of enforcement and the encouragement from Local authorities and CAB to break the rules .

In 2014 Electrical Safety First and Shelter released a joint report examining current electrical conditions in the Private Rented Sector (PRS). The report found that sixteen percent of renters have experienced problems with electrical hazards in the last year alone.^[1] The report calls for mandatory five yearly checks of electrical installations and electrical appliances supplied with private rented sector properties by a competent person.

Economic and social change

Of equal importance to the changes in legislation have been the economic and social changes that took place over the next decade. The recession of the early 1990s reduced the appeal of home ownership as a complete solution for housing need, and the impact of unprecedented levels of arrears, possessions and falls in value remain etched on the national consciousness.

More recently, social changes, especially an increase in student numbers, greater labour mobility amongst young people and a rise in immigration, added to the demand for rented accommodation, causing a second growth period in the last four years.

With local authorities unable to expand public rented housing to fill the gap and limited funding for Housing Associations, the newly liberalised private rented sector expanded in response to demand and grew by 27% in the fifteen-year period to 2004.

In 2010 the government ran a large scale survey of the Private Rented Sector and analysed the social and economic spread of private landlords.^[2] Some key findings were:

• Eighty-nine per cent of landlords were private individual landlords responsible for 71% of all private rented dwellings, with a further 5% of landlords being company landlords responsible for 15% of dwellings.
• More than three quarters (78%) of all landlords only owned a single dwelling for rent, with only 8% of landlords stating they were full-time landlords.
• Over three-quarters (77%) of all dwellings in the PRS were purchased by the landlord, 9% were inherited and 8% were built by the landlord.
• Fifty-one per cent of all dwellings were acquired since 2000, 25% in the ten years between 1990 and 1999 and 24% prior to this date.
• A mortgage was used when acquiring 56% of dwellings in the private rented sector, with personal savings being the next most common means of finance used to acquire 21% of dwellings.
• Eighty-nine per cent of landlords were private individual landlords, 5% were company landlords, and 6% were ‘other organisation’ landlords. These were responsible for 71%, 15% and 14%, respectively, of all dwellings in the sector.
• Twenty-two per cent of landlords had let properties for three years or less with two-thirds (69%) for 10 years or less. Only 5% had let for more than 40 years.
• In terms of formal letting and management practices, nearly all landlords and agents (97%) made use of a written tenancy agreement, with 91% requiring a deposit, and 84% requiring tenants to provide a reference.

The arrival of Institutional involvement in UK Private Rented

Institutions such as pension funds and insurance companies have been very active in residential investment in countries such as Germany and the United States where private rented residential property accounts for a much larger part of the overall residential stock (Germany 60% and US 32% - English Housing Survey 2014-2015, DCLG).

In contrast, the UK saw limited involvement until more recently, due to a long-standing fear of rent control and other reputational concerns related to the ownership of rented residential. Since 1990, the percentage of UK housing stock in the private rented sector has grown from 9% to 19% but mostly due to the growth in the private “Buy to Let” investor.

Since 2010, UK institutions have taken serious interest in the private rented residential sector, in part encouraged by their positive experiences in the private student accommodation market. The potential for high and continued rental streams, linked to general inflation, has attracted institutions seeking to match their liability profiles.

Investors have looked to other more established private rental markets to identify the best practices adopted. This has seen the development of the “Build to Rent” (B2R) concept into the UK which follows the service-led culture of the multi-family sector in the United States.

The involvement of different investors ranging from the private individuals owning Buy to Let properties and Houses of Multiple Occupation, through Housing Associations and Property Companies operating large scale rentals and the institutions creating the new market for Build to Rent properties has created a complex spectrum to the Private Rental Sector.

References