The mayor of London, Boris Johnson, recently announced a new vision for the improvement of the capital’s housing market. The proposed strategy will provide more than £1bn in funding for the development of new homes in the city and will also have an impact on the private rented sector (PRS).
The Greater London Authority plans to build 5,000 purpose-built rental homes per year, reaching a minimum total of 42,000, and a deal has already been signed for a construction project to get underway in Elephant and Castle. Such a strategy could potentially have a big impact on London’s PRS and with this in mind, we have decided to take a look at the current situation in the capital.
Supply and demand
The expansion of the PRS has probably occurred faster in London than in any other part of the country. Research by Strutt & Parker earlier this year showed the highest concentration of UK districts with at least 20 per cent of housing in the rental sector was in the capital. Meanwhile, Savills recently revealed over a quarter (26 per cent) of London households are currently part of the PRS, which represents an increase of 79 per cent since 2001.
While the capital’s rental sector is expanding at an impressive rate, there are widespread concerns that supply will be unable to keep up with demand and this is something the mayor’s new strategy hopes to address.
Savills has claimed some 50,000 new rental properties are required in the city annually and at least half of these need to be aimed towards the lower end of the market. The organisation even warned the lack of suitable homes at present could damage London’s ability to compete as a global city.
The Greater London Authority’s plans to build new rental properties fall well short of this target, but it is still encouraging to see the organisation recognising the shortage of stock as a problem and taking action to tackle it.
With demand for PRS properties currently outpacing supply, it is no surprise that rents in London are on the rise. The cost of renting in the capital is comfortably more expensive than anywhere else in the UK and the latest figures from LSL Property Services put the average figure at £1,156 for October. This is an increase of close to five per cent on the same month in 2012.
Such is the value of the PRS in London that a recent report by Move with Us claimed the average rent in the city is 209 per cent more expensive than the typical costs of renting in the rest of the country.
However, while capital rents are undoubtedly very high, research from Countrywide has revealed it is actually cheaper to rent than buy a property in all but one of the city’s 32 boroughs. This is due to the price of houses continually rising in recent months and is good news for the letting sector, as it suggests London’s PRS will continue to expand in the near future by providing a more affordable means of accommodation.