A report from economics consultancy Capital Economics commissioned by the National Residential Landlords Association (NRLA), found that the current annual growth rate of social and owner-occupied housing meant the private rented sector would need to plug this gap with 227,000 properties a year.
This would help the UK meet the government’s overall target of 340,000 new homes per year by 2025 and an anticipated 1.8 million new households over the next 10 years.
The report said even if other housing tenures doubled their rates of growth, the private rental sector would still need to provide an additional 105,000 homes to provide sufficient housing supply.
Investment in social housing remains low, the report said, with the £12.2bn available through the Affordable Homes scheme expected to deliver 180,000 homes by 2026. Of these, 32,000 will be for social rent. This will be equivalent to 30,000 new homes a year if the target is met.
Some housing demand can be met though build to rent which currently accounts for 69,000 homes in total across the UK. Capital Economics said this was a small but growing sector.
Policy changes and short-term lets affecting supply
Government figures show that the supply of private rented housing in England has fallen by almost 260,000 over the past five years.
Capital Economics suggested that without additional changes in tax or other policies, the private rented sector stock will decrease by around a further 540,000 properties over the next 10 years.
It cited tax changes, environmental regulations and the removal of Section 21 as factors which could impact the growth of the private rental sector.
The report also said the rise in short-term lets was having a negative effect.
It added: “Short-term letting has increased in popularity over the past decade. It has been an attractive alternative over long-term lettings for many landlords who favour increased flexibility and have been put off by more burdensome regulations in the private rented sector.
“Without long-term tenants, landlords can more easily sell-up and leave.”
Government support needed
The report suggested that investment in the sector was needed to fuel the supply of housing.
It said this would “support the provision of new housing through a combination of an increased rate of new builds, encourage the switching of commercial property to residential and the switching of stock from short-term to long-term lets and bringing empty homes back into use”.
Ben Beadle, chief executive of the National Residential Landlords Association, said the report highlighted the supply crisis engulfing the sector.
“For all the efforts to support homeownership, the private rented sector has a vitally important role to play in helping the government to achieve its housing objectives.
“Without urgent action, the increasing number of people looking for affordable housing will be the ones to struggle as they face less choice and higher rents as supply dries up,” he added.
Andrew Evans, managing economist for Capital Economics, said: “The private rented sector, which is predominantly supported by private individual investors, has a key role to play in addressing housing need in the UK.
“However, the stock of homes for private rent has fallen in recent years, driven partly by a series of policy changes. Without further changes, that supply could fall by over half a million more over the next decade. Even with increased provision of affordable housing and higher rates of owner occupation, both of which are important, our research shows that significant additional investment is needed by landlords in the private rented sector.”