Private Rented Sector Supply in London, July 2023

  • By Daniel Kosky

Overview

London Councils has commissioned the most comprehensive study yet published of London’s private rental market and its relationship to homelessness pressures. The research, undertaken jointly by the London School of Economics and Savills, is co-funded by Capital Letters, the London Housing Directors' Group and Trust for London. You can read the full report here

This Parliamentary Briefing summarises this research, and London Councils' asks of Government. 

Background

London is in the midst of a severe housing affordability crisis. This crisis is driven by wider changes to the Private Rented Sector (PRS) in London, including an unprecedented reduction in the availability of accommodation alongside rents climbing to higher than pre-pandemic levels. London is especially reliant on the PRS, with the tenure now accounting for 30 per cent of homes in London, much more than the UK average of 20 per cent. Systemic changes within the sector therefore have a disproportionate impact on London residents, particularly households on lower incomes.

Key Findings

The report found London’s PRS was affected by multiple factors driving a reduction in the availability of properties for rent. It found that:

  • Rental listings have fallen across London. Across 1-4 bed properties the overall reduction is 41 per cent down on the 2017 average. This reduction in the availability of private rental accommodation is higher in London, compared to a 33 per cent fall in new lettings nationally.
  • The number of 1-3 bed properties listed for rent in both inner and outer London was down by around 36 per cent since the pandemic (comparing January-March 2023 to the January-March average across 2017-19).
  • Listings for four-bedroom properties declined the most. Over the same period, listings of four-bedroom properties almost halved (46.6 per cent).
  • In February 2023 asking rents were close to 20 per cent higher than they were at the start of the first COVID-19 lockdown in March 2020. The weakness in new supply coming to the market indicates that further rental growth is likely.
  • Between January and March this year, only 2.3 per cent of London listings on Rightmove were affordable in within Local Housing Allowance (LHA) rates – falling from 18.9 per cent in 2020-21.

The report identified a complex mix of causal factors driving the reduction in the availability of properties:

  • The buy-to-let market in London is contracting, with more private landlords reducing rather than growing their portfolios. The number of rental properties being advertised for sale has more than doubled since the pandemic, and the proportion is rising.
  • Policy and economic factors are increasing landlord costs, and this impacts particularly those letting at lower rents. Landlord focus groups and online forums cite challenges leading more landlords to consider selling: the abolition of Section 21, increased mortgage rates, and new rules on EPC ratings.
  • Tenants are remaining in rented homes for much longer periods, with tenancy lengths broadly doubling, this reduces churn in the PRS and means properties are re-let less frequently. Availability and cost of alternative properties plus restricted access to home ownership drives this and it looks set to continue

Homelessness Pressures

  • This contraction in the London PRS market has had a severe impact on London boroughs’ ability to prevent and relieve homelessness. Due to the shortage of social housing in London, securing PRS accommodation is the only viable option for prevention and relief of homelessness in most cases. The reduction in supply combined with increasing rents has severely undermined both London boroughs’ ability to source housing for households, either as part of prevention activity or as move on from Temporary Accommodation (TA).
  • The number of households owed a prevention or relief duty by their borough was 14.4 per cent higher in February 2023 compared to the same month a year prior.
  • There has been a significant increase in the number of families in B&B accommodation, who have been placed there by boroughs as a last resort where no other suitable accommodation is available. In February 2023, 24 authorities reported 1,550 households living in B&B accommodation (including hotels), up 167.2 per cent on the year before.
  • London Councils estimates that 166,000 Londoners are homeless and living in TA arranged by their local borough. This figure is equivalent to the entire population of Blackburn or Oxford.
  • On current trends, London will see its highest ever number of homeless households in Temporary Accommodation by the end of the summer. Boroughs in the capital are collectively spending around £52m each month on temporary accommodation and suitable accommodation for homeless households increasingly scarce the crisis is becoming increasingly unmanageable

What London boroughs need from the government 

Without significant government intervention, all the indicators suggest that the current crisis will continue to worsen. London Councils is calling for the government to:

  • Improve the purchasing power of lower income households by increasing LHA rates cover at least 30% of local market rents.
  • Develop fiscal incentives for landlords to participate in the lower end of the market. For example, landlords who agree to let to a lower sub-sector of the market for a reasonable length of time could be offered mortgage interest relief or capital gains tax relief.
  • Enable a greater amount of public acquisition of properties leaving the LHA/TA subsectors. Councils themselves have very limited capital funding for acquisitions. The availability of funding through the government’s Local Authority Housing Fund to purchase homes for use as TA is welcome, but additional funding is needed. Government could provide further grants or other capital funding so that these properties can be purchased by local authorities or their partners.

However, these steps alone will not address the complex combination of long-term structural issues that have led to a shrinking availability of privately rented homes and increasing homelessness:

  • The introduction of the Renters Reform Bill and the proposed abolition of Section 21 evictions is welcome, but this needs to be delivered in a way that does not lead to an even greater reduction in the availability of properties. To tackle the root causes of this crisis the government must go further and develop a long-term private rented sector strategy to ensure the provision of sufficient privately rented homes to meet demand. 
  • In the long-run, the key to addressing homelessness and London’s housing crisis will be to build more homes, and specifically more affordable socially rented accommodation. London boroughs have made a good start in this regard but there is no doubt that there is much more to do.
Daniel Kosky, Parliamentary Officer