The outlook for the private rental market is “unusually uncertain” following nearly two decades of robust growth, according to a report.
The rental market review said that as the market moves out of the pandemic, the future is clouded by economic uncertainty and shifts in housing preferences.
The review was compiled for the Mortgage Works, a subsidiary of Nationwide Building Society.
Robert Gardner, Nationwide’s chief economist, said: “The outlook is unusually uncertain in the wake of Covid-19.
“As well as the enormous uncertainty surrounding the near-term path for the economy, there is also scope for the pandemic to have profound effects on the pattern of economic activity and housing demand in the years ahead which could have important implications for the PRS (private rental sector).”
Mr Gardner said the proportion of households in the private rental sector in England edged down for the third year in a row in 2020, to 18.7%, from 19.3% in 2019 and 20.3% in 2017.
He said: “This represented a significant shift after almost two decades of robust growth. Indeed, the proportion of English households in the PRS rose from 10% to 20% between 2000 and 2017.”
Increased regulation, political uncertainty and tax changes have dampened investor demand in the sector, he added, while first-time buyer numbers have increased on the back of schemes such as Help to Buy.
Changes to property taxation, pensions and/or capital gains tax could further impact investor appetite in either direction in the years ahead, he said.
Coronavirus lockdowns and a stamp duty holiday have also boosted housing market activity, as people have reassessed their needs.
Research in April found the pandemic had prompted more than a quarter (29%) of people across the UK to move or consider moving home.
Mr Gardner said: “Interestingly, looking across tenure types, those in the PRS were most likely to be moving or considering a move, at 40% of those surveyed, compared with 32% of those owning their home with a mortgage and 20% of those who owned their home outright.
“Within the PRS, the desire to move as a result of the pandemic was prevalent across most regions, but was particularly marked in London, where over half of tenants were moving or considering a move.
“As well as the uncertainties surrounding the broader economy, it is also unclear the extent to which shifts in housing demand will persist, and the extent to which people will act on them in the years ahead.
“If demand permanently shifts away from more densely populated locations and property types, this could have an adverse impact on the PRS in aggregate, given that the privately rented housing stock is more concentrated in urban locations and in flats and terraced properties.”