A market of two halves as the politicians gather
The Private Rental Sector has never been higher on the political agenda. It has expanded by one million people since 20081 and campaigners and policy makers have been trying to influence the debate. The Commons Select Committee report on the PRS was released in July, just as Parliament withdrew for the summer. As the second wave of Help to Buy launches, it is clear that housing is going to be a big election issue. This and other trends from our 8 offices are below.
A manic July with good demand across the board…
The busy, productive market from Quarter 2 continued into July with new lets achieved up 11% on 20122. Our East Oxford team were ‘in the zone’ and let over 50 properties in July in Headington, Cowley and Iffley, their busiest month in 21 years. The background to this productivity was good property management in the preceding 12 months so that the homes presented well upon re-letting. Seven properties were let on the first viewing, for example Photo 1, a 3 bedroom house in Littlemore, was let to existing tenants from our central Oxford office. Incidentally, one of the sharers leaving the property in Photo 1 was found a property by our north Oxford office. It pays to have a good network. In Banbury and Abingdon demand was greatest for unfurnished 2 bedroom houses while in north and central Oxford 2 bedroom furnished apartments were most sought after.
…but the absence of unfurnished family tenants affected August and September
The Oxfordshire rental market is more stable and less volatile than other parts of the UK. Years of consistent rental behaviour can make it easy to forget that it is still a ‘market’ which is subject to supply and demand. In August and September the volume of families looking for unfurnished, larger homes fell away as they took advantage of greater house buyer confidence and more accessible finance to buy rather than rent. When the market changes, decisive action and flexibility are paramount. Success is defined as the greatest income achievable relative to demand, the highest quality of tenant available and optimal duration of tenancy. We still let some lovely homes in August but the landlords either had to be flexible on price or other negotiating points, for example: who pays for the swimming pool maintenance (Photo 2, at £4,9503), the length of tenancy (Photo 3) or understanding that a group of trainee monks, while not the most obvious tenants, would in fact look after a stunning 6 bedroom family home with great care (Photo 4).
Cultural differences, higher European standards
We found homes in South Oxfordshire over the summer for many continental Europeans working in Science Vale. Their high expectations are a challenge and an opportunity. In France or Germany tenants expect rental homes to be empty (unfurnished), without white goods and immaculate before moving in. So when showing these nationalities occupied rental homes you often find them struggling with British levels of tidiness. However, if you can present homes in excellent condition you can secure excellent tenants, often on corporate tenancies. Photo 5 is an example, a lovely 4 bedroom house in Culham let recently at £1,695. The tenants are so attached to their washing machine and dishwasher they brought them from Europe!
Increasing property standards will require incentives
The issue of cleanliness re-introduces the debate about property standards in the rental sector. One report states that 35% of rental homes are ‘non-decent’4 and the Select Committee Report5 bemoans the standard of rental property. The problem is that there are stunningly few incentives for landlords to invest in their rental homes, yet the MPs’ report offers few new ideas. The tax burden has become harder in recent years as rules around furnishing allowances have been tightened. This is a shame as upgrades can – when designed with the future tenant in mind – be a win:win for landlord and tenant and also benefit the local construction industry.
Photo 6 is an example: we had let this 4 bedroom house for 15 years in total, and to the same corporate tenant since 2004. At the end of that tenancy, we worked with the landlord to reconfigure the house for modern living and four ground floor rooms became two big rooms and a shower room. We delivered the refurbishment on time and the incoming tenant is delighted. The rent has risen 18% to £1,600. Until stronger tax incentives are in place, such upgrades will not become more widespread across the UK. The Government is due to respond to the Select Committee’s report shortly.
ID needed to rent: you must be 55 or over
We recently successfully let three apartments in Witney with a planning condition that the tenants must be over 55 years old. One theory dictates that healthcare costs and the desire to release equity for children and grandchildren will lead to people over 60 creating a downsize-and-rent trend. There is a long way to go. For each person over 65 in the rental sector there are 13 people who own their home6.
We can all remember studying population pyramids at school and the image above illustrates that the word ‘pyramid’ is now inaccurate and how much older the UK will become by 2035. Indeed, the number of people of state pension age is forecast to increase by 28% from 12.2 million to 15.6 million by 20357. It will be interesting to see whether more local authorities use policy to move this growing demographic into private renting.
Commercial to residential is a good policy
It’s funny how an election focuses the mind*. Mindful that a) house prices are going up, b) Help to Buy might create an unwanted bubble and c) new build levels are still insufficient, housing was higher on the political party conferences’ agendas than in previous years. While politicians threaten developers to ‘use or lose’ their land bank8, developers cite the slow and under-resourced local planning process as the real block in the system9. However, some common sense is emerging. The central Government decision to enable the change of use from commercial to residential is a good idea. We are working with commercial landlords keen to exploit under-performing assets. They want to understand exactly what tenants want, the right unit sizes and predicted incomes.
* And the party leaders’ minds as well: as we go to press the Housing Minister and Shadow Housing Minister have both been fired.