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Property supply to the lower end of the English private rented sector

Posted on 23 June 2021

This new report by Julie Rugg and Alison Wallace, funded by the Nationwide Foundation, explores letting practices at the lower end of the private rented sector with a focus on landlord intent and property supply.

The report uses secondary analysis of existing datasets to define ‘lower end’ of the market in terms of demand. The research also examines portfolio development, financial strategies and management practices of landlords through detailed, depth interviews with 55 landlords.

Key messages from the report:

• ‘Lower end’ has multiple definitions and tenants have different characteristics depending on those definitions. Working, ‘benefit-supported’ tenants are less likely to be in financial difficulties than fully ‘benefit-dependent’ tenants who are not in work because of their health, age or caring responsibilities.
• Landlordism is a dynamic state and includes accidental, investment, portfolio and business landlords who are moving into, through and out of the rental market.
• The ‘housing benefit market’ is not one market. Some landlords tolerate tenants receiving housing benefit but do not set their rent through reference to the Local Housing Allowance rates or charge or their management practices. Landlords who actively target tenants in receipt of housing benefit do both of those things, but also have letting preferences depending on the degree to which tenants rely on benefit.
• Landlords who were targeting the bottom end of the PRS focused on cost minimisation rather than rental maximisation, with strategies aimed at reducing voids and tenancy turnover.
• A great deal of current supply to the bottom end of the market is being let in circumstances that are not easy to replicate: in particular, there is an aging cohort of landlords with portfolios that were built at a time of flexible financing and benign tax treatment. New entrants to the market will not be able to build their holdings in the same way.
• There are areas of the country where the LHA rates are higher than market rents, and larger business landlord activity was targeted at those areas.
• Landlords in the HB market judged tenant groups in terms of the level of risk and options for risk mitigation. Alternative Payment Arrangements (APAs) could offset the risks of letting to more vulnerable tenants. Where landlords had poor experiences with APAs they were likely to change their target market.
• Mediating agencies are playing an increasing role in the housing benefit market, and are becoming oriented towards large-scale procurement and management of rental property backed by investment capital.
• The Covid impact felt most strongly by landlords was limitation in the ability to use s21 as a means of evicting highly problematic tenants. Some landlords had simply paid those tenants to leave principally as a means of reducing the accumulation of unrecoverable arrears.
• There were multiple reasons why landlords were choosing to exit the market, which often worked in combination. Taxation changes, introduction of UC and a swathe of new regulations had increased the risks attached to letting whilst at the same time reducing profitability.

Larger landlords who were seeking to expand in the HB market were more likely to be targeting localities where LHA rates were above market rates and let to tenant groups where APAs could be secured.

Read the full report: Sustainable Private Rented Sector (PDF , 1,590kb)

See the upcoming Zoom presentations by Julie Rugg exploring aspects of the research: