The Explosion of Generation Rent

Generation Rent Life Expectancy

Whichever way I look at London’s housing market, I can’t help but think one thing is certain: we are facing an explosion in the central London rental sector that will come as a windfall for landlords.

The fundamentals are that the population is rising and we are living longer. There are more people, more renters and more millionaires, investing heavily in buy-to-let property, preventing others from buying and pushing ever more people into becoming long-term tenants. It all points to one thing as far as the rental market is concerned: rising numbers of tenants means fewer properties to go round and rents will rise. According to PwC, two thirds of Londoners will be renting by 2025.

It’s a big shift away from where we are right now and where we have been for the past 10 years. But this is how I see it changing.

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The last decade has seen a significant rise in investment in London rental property – and few of those investors have sold during that period. The buy-to-let market has done well from the credit crunch. There are fewer attractive global locations for investors, which has made London property a safe haven for overseas cash. And the dynamic of Prime Central London has shifted with far more property being let out than lived in by the owner.

Today, however, fewer properties are selling. Brexit concerns are playing a big part in buyers’ hesitation. Investors are also looking at rocketing house prices and fearing a loud pop. Two recent stamp duty rises have done little to encourage investors either and tax changes have lead to a mood of mistrust between non-dom purchasers and the UK government.

With growing numbers of unsold properties going on to the lettings market, the picture has become hotly competitive for landlords as tenants wallow in choice. The slowdown in the sales market – and the deluge of new-build properties coming onto the market – is only going to add to the supply of rental properties. So in the immediate term, there’s a bit of a glut. LCP said there were 75,229 new properties in the pipeline, which means “a risk to buyers of a substantial oversupply of such units, both to buy and to rent, suppressing yields and prices.

That all means it takes longer to find a tenant – and as every landlord knows, void periods are the biggest killer. When your property won’t shift, you have four options: find another agent (either by instructing more than one agent or choosing a better one); improve your property; lower the price and/or wait.

However, in the mid to long term, however, I see all this changing radically. Affordability in London is a huge issue and it is forcing a growing number of people to rent. Even families with household incomes that are multiples of the London average are renting because they can’t afford a house to suit their need for space, gardens and good schools.

As London’s population grows (the forecast is by 25% by 2039, taking it to 11m) and death rates fall (by 1.1% in 2015 on the previous 12 months), there will be further pressure on housing. Just over half of those new
Londoners are expected to be from new arrivals in the UK. And then there are all those millionaires, whose number is set to grow by a third by 2020. Those that aren’t pushing up the rental population by filling their property portfolio like a big bag of pick and mix are becoming tenants themselves, dissuaded from investing by all the punitive tax changes.

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As London grows in population, it changes in dynamic. Corporate relocation is on the rise; currently nearly half of all tenants in prime London are renting due to employment relocation, according to Savills, and the burgeoning tech sector is adding to their ranks.

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London is also a major education capital, second only to New York as the world’s most popular city for higher education. London’s student population is set to double by 2025, say Jones Lang LaSalle, boosted by the likes of Imperial College’s new £3bn data science campus in West London’s White City. Many overseas families – from Asia, in particular – want a London university education for their offspring and will pay stratospheric rents to ensure they are centrally and safely housed. One 19-
yearold design student from the US recently took over the tenancy of an apartment in Park Lane for £21,000 a week.

These factors, plus high purchase prices, the need for big mortgage deposits and stricter lending criteria means Generation Rent is ever widening its arms to embrace a bigger cross-section of London’s population. To me that can only mean that landlords in London – difficult as it may sometimes seem now – will reap the rewards in years to come.