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Growth of the rental market & impact on the EA's revenue

By  Nick McConnell  ·  2 minute read

The demand for rental properties is continuing to see significant growth driven by a lack of affordable housing combined with an increase in the number of people in all demographics choosing to live in the PRS for the long term.  

In the most recent English Housing Survey, the proportion of private renters aged 55 to 64 was nine per cent in 2017-18, up from just five per cent a decade earlier. Over a decade the EHS recorded a 1.8m rise in the number of family tenants over a decade. 

However, in spite of the increase in demand the anticipation is for a contraction in the buy-to-let sector with several significant factors impacting including: 

    • The introduction of the Tenant Fees Act which came into force in June prohibiting landlords and agents from charging any fees to tenants, other than those ‘permitted’ by the Act.Prohibited charge include referencing, administration charges, renewal & exit fees.
    • Changes to the tax relief available to Landlords
    • The increase in Stamp Duty on rental properties

So, with demand increasing but supply contracting what does the future hold? When Mayor of London Boris Johnson regularly spoke of not over-regulating the rental market, and for the need to boost the supply of homes to rent. In his role of Prime Minster delivering on these words is eagerly anticipated. 

From an investment perspective subdued house price inflation no longer offers Landlords the opportunity for a "quick buck" however, the buy-to-let market continues to offer a pension-style income stream that delivers a monthly cash flow from a property.  

For Estate Agents the significant growth in the rental sector is seen as an opportunity to diversify their businesses into a broader range of Property management services. With their core fee base diminished by subdued residential sales combined with downward pressure on the fees achievable, the rental sector is seen as a potential lifeline. Foxtons in their recent reporting outlined the significant expansion of their property management services "to help minimise the risks Landlords face and deliver exceptional service that supports landlords in unlocking the full value of their property". 

This change in approach by Agents requires more than just a diversification of their services portfolio but also their whole engagement model. For those focused on residential sales, the infrequency of homeowners moving (once every 19 years on average) requires minimal ongoing or regular dialogue with potential sellers. However, to provide services to Landlords and in turn their tenants requires a significant focus on relationship building & communication.   

For many Agents the lack of data or insight into both their territory and the Landlords who have properties within their "patch" is a major barrier to gaining significant traction, whilst establishing a database of potential tenants to satisfy the supply of properties will be seen as an "essential" service for any Landlord.