Heather Pearson on the growing letting sector
Since the explosion of private home ownership following Right To Buy in the 80s, owning your own home has been considered a life aspiration for most people in the UK. With rising prices and stagnating wages, an aspiration is what it will remain for many.
Research last year from the Joseph Rowntree Foundation showed that, in 2011, private rentals in Scotland had doubled, from 7 per cent in 1991 to 14 per cent two decades later. Almost a quarter (24 per cent) of all households in Scotland were living in social housing, down from 41 per cent in 1991.
The issue was highlighted again recently by PwC following the release of its regional analysis. It predicted Scotland’s average house prices will rise to £250,000 by the end of the decade, and the number of private tenants will outnumber homeowners by 2025.
Tagged ‘generation rent’, Scotland’s private rental sector is forecast for steep growth as an increasing number of Scots are being priced out of property ownership and renting is the only option.
It should not be forgotten however that within this sector is also an increasing number of social housing tenants where, due to a lack of supply of social housing, private renting is their only option.
This has been criticised as a failure of the current housing system, and most people would agree there’s work to be done to improve provision of affordable housing for those at all levels of the market. And that’s the point.
Despite the hysteria over a shrinking property ownership class, the rise of a strong, well-run private rental sector is to be encouraged and does present some opportunities. It is important therefore that the diverse interests of parties either living in or involved in this growing sector are considered, as only then will it thrive.
From a consumer’s perspective, there is work to do in changing expectations so that renting is viewed as a viable and sustainable alternative to home ownership and in order to do so the product needs to evolve and adapt to meet the aspirations of ‘generation rent’. This work is already ongoing and demonstrated by Scottish Government’s Private Rented Sector Strategy which includes further reform of the regulatory and tenancy system and Homes for Scotland’s Building the Private Rented Sector.
It is a well-known fact that approximately 80% of current landlords within this sector own fewer than five properties and many are ‘accidental’ landlords in part due to the economic crisis. For those, keeping up-to-date with and complying with the increasing regulation and standards can be challenging.
The Scottish Government has also signalled its desire to bring more institutional investors into the housing market to increase both the quality and quantity of supply and this has the potential to transform the sector.
The shift towards a more professional property rental sector, combined with a rising demand for rental properties, therefore presents an ideal opportunity for professional property managers to step in and offer their services in the private rental sector and weed out ‘rogue’ landlords.
For the social housing provider there are many opportunities to become involved in the private rented sector and many are already. These are organisations which are well-resourced and necessarily up-to-date with the legislation and regulatory requirements of the rental sector so can offer real value to landlords for whom property management is not a full-time profession. They have a track record of managing properties at scale and have considerable advice resources which tenants can access.
The regulatory framework within which they operate is attractive to institutional investors – it offers steady, predictable returns and low risk. As most social landlords are also charities they tick boxes of corporate social responsibility and ethics as the fees generated from this service will be returned to the social housing sector to deliver further housing and services.
Whether or not social housing providers are involved, however, an increase in professional property management practice across the private property rental market is both vital and likely as the sector grows. It is part of a robust portfolio of housing options being developed through ongoing reform and a stronger private rental industry will benefit Scotland’s living situation overall.
• Heather Pearson is a partner at HBJ Gateley and leads its social housing and regeneration team in Scotland. She is also vice chair of Trust Housing Association. www.hbjgateley.com