Private rented sector outstrips value of commercial property

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by Lin Freestone

A report titled ‘The Modern UK Housing Market - Origins and Prospects’ states that the value of the private rented sector in the UK, which currently stands at £500bn, now outstrips the total of all privately-owned commercial property, including offices, shops, hotels, factories, warehouses and leisure facilities.

The first part of the report, published today by the Association of Residential Letting Agents (ARLA), predicts that the private rented sector will continue to outstrip other types of investment property and rents will rise significantly in the short term. House prices will almost certainly increase faster than commercial real estate over the longer term.

Part 1 of the report forms part of a wider study into residential housing commissioned by the National Federation of Property Professionals and prepared by Michael Ball, Professor of Urban and Property Economics at Reading University. The entire report will be published in the Autumn and will cover the market sectors of both its residential housing divisions, ARLA and the National Association of Estate Agents (NAEA).

The initiative taken by ARLA with the launch of Buy to Let to re-build and re-finance the private rented sector has proved successful, and has softened the effects of the ups and downs in the housing market.

It is now possible for younger people to rent suitable accommodation for their families and delay the age at which they would need to buy their own homes. The current 56% of 30-34 year olds who are able to afford to buy will fall to 45% by 2016 and only 34% by 2026.

For the past 15 years, rents have been outstripped by house price rises, although they have risen faster than general price inflation. Landlords’ yields have not been particularly high because the rise in house prices has eroded the uplift in rental income.

ARLA’s own research shows that rents rose by around a fifth between 2003 and 2007. The report states that the DCLG Rent Index suggests rents have risen by almost 40% since 2000. The report forecasts that rents will rise by 10% to 15% in both 2008 and 2009.