Rents to rise 15% as landlords squeezed by regulation and running costs

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Rents are expected to increase 15% over the next five years due to increasing demand and limited supply following the Governments section 24 tax assault on buy to let investors. 

A Royal Institution of Chartered Surveyors (RICS) market snapshot shows nearly a quarter of respondents reporting a fall in new landlord instructions in the last three months.

New NLA research for quarter 2, 2018 found that among landlords planning to raise rents in their portfolio, the key reasons for doing so were covering the increased costs of running a property (47%) and strengthening tenant competition (42%).

Interestingly, only 15% surveyed reported the recent stamp duty changes as a key reason.

The increasing of costs for landlords means rents are projected to increase. The NLA Small Landlords Panel report found those planning to raise rents have reported they will raise them by an average of 8%, with some analysts in the industry predicting a 15% increase by 2023.

The institution says the surge reflects the changes in the rental sector after small-scale landlords quit thanks to section 24, increasing running costs and an ever increasing regulatory burden.

East Anglia and the South West are expected to see the sharpest growth over the period.

RICS chief economist Simon Rubinsohn says: “The impact of recent and ongoing tax changes is clearly having a material impact on the Buy to Let sector as intended.

“The risk, as we have highlighted previously, is that a reduced pipeline of supply will gradually feed through into higher rents in the absence of either a significant uplift in the Build to Rent programme or government funded social housing.

“At the present time, there is little evidence that either is likely to make up the shortfall. This augers ill for those many households for whom owner occupation is either out of reach financially or just not a suitable tenure.”

And Abdul Choudhury, RICS’ policy manager, adds: “Our survey suggests that recent government policy and legislation changes have impeded the growth of the private rented sector, which is a vital part of a functioning homes market.

“Withdrawing tax breaks that small landlords relied on, placing an extra three per cent on second home stamp duty, and failing to stimulate the corporate build to rent market, has understandably impacted supply.”

“The government must urgently look again at the private rental sector as a whole, including ways to encourage good landlords.”

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