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 has become increasing reliant on the private rented sector and privately rented properties now account for 30 per cent of homes in London, significantly higher than the UK average of 20 per cent’. London is home to 2.7 million private renters, meaning any reduction in the availability or privately rented properties has consequences that reverberate across London.
Initial research commissioned by Capital Letters and carried out by Savills first documented the contraction in PRS property availability, finding that the number of properties listed to rent across London in the first quarter of 2022 was 35 per cent lower than the pre-COVID quarterly average. In response to this initial finding London Councils commissioned further research to identify the causal factors driving the reduction in the availability of PRS accommodation in London.
The analysis – which represents the most comprehensive study yet published of London’s private rental market and its relationship to homelessness pressures – was undertaken jointly by the London School of Economics and Savills and is co-funded by Capital Letters, London Housing Directors Group and Trust for London. The research combines detailed analysis of rental market data with surveys, interviews and focus groups with landlords and letting agents.
While the research covers the London PRS as a whole, it has a particular focus on the most affordable section of the market as that has the greatest impact on low-income Londoners and boroughs’ ability to prevent and relieve homelessness.
With rents continuing to grow and the buy-to-let market contracting, the report highlights the increasing difficulties faced by low-income households seeking affordable accommodation and by London boroughs working to prevent homelessness.
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 fall of 33 per cent 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.
The researchers also investigated affordability for the 300,000 London households reliant on Local Housing Allowance (LHA) to meet their housing costs. Eligible households receive LHA as part of their housing benefit or universal credit payment if they have a private landlord, and the government has frozen LHA rates since April 2020.
In the face of fast-rising rents, the decision to keep LHA rates frozen has significantly reduced the number of properties affordable in London under LHA. Between January and March this year, only 2.3 per cent of London listings on Rightmove were affordable in 2022-23 to those using the benefit to pay their rent – 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
Reccomendations
Without significant government intervention, all the indicators suggest that the current crisis will continue to worsen. The report sets a number of recommendations to address the problem, including:
- Improve the purchasing power of lower income households by increasing LHA rates to reflect current market levels.
- 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 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.
These recommendations, if implemented, would provide welcome immediate relief to London’s housing pressures. This is particularly the case for increasing LHA rates, which is the only effective tool available to the government to prevent and reduce homelessness in the short-term.
However, these recommendations alone will not address the complex combination of long-term structural issues, government policy and economic factors 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 in this regard 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.
