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London housing shortage will cause ‘crippling rise in costs’ for renters without thousands of new homes

 (Matt Writtle)
(Matt Writtle)

Young tenants in London face ever crippling increases in housing costs unless there is a massive boost to new private rented accommodation over the coming decade, a report warns today.

It says that 83,000 new homes for private rent must be provided in the capital each year to meet growing demand from young workers looking for a home.

The study from City consultancy Capital Economics says that the private rented sector (PRS) has been held back by a series of tax and regulatory changes that have deterred landlords.

These include the withdrawal of mortgage interet relief between 2017 and 2021; the three per cent stamp duty surcharge on purchasing second homes introduced by George Osborne in 2016; and a ban on agents charging tenants’ fees, which landlords say has resulted in extra costs being loaded on them.

Another factor limiting the supply of homes available for workers includes the huge growth in the Airbnb-style short term letting market, the report says.

The number of homes available for private rent in England fell in 2017 for the first time since 1999 and also dropped in 2018 and 2019 as the impact of the tax changes rippled through the buy to let sector.

London has by far the biggest private rented sector of any region in Britain accounting for 29 per cent of all homes in the capital. The vast majority are provided by individual landlords with the “build to rent” sector still only providing 69,000 new homes in total across the UK.

The report says that rising interest rates and stretched affordability will continue to limit young Londoners ability to buy their own homes while levels of investment in social housing “remain relatively low.”

It concludes: “Regardless of whether the government reaches its housebuilding target, more PRS stock will be needed to meet demand and improve the functioning of the housing market.

“It will help to meet demand for homes for those who cannot afford home ownership, those currently living with parents, people living in overcrowded households, dwellings in poor condition or those that are homeless. In addition, there are mismatches in the location and suitability of supply and demand; more PRS stock will help to redress these imbalances and put downward pressure on rents.”

Rents are already at record levels in the capital with tenants reporting a chronic lack of supply as young people flood back into London to return to the office after the work from home era. They hit an all time high of £2,142 per month in January, according to figures from property website Rightmove.

Increasing the number of homes in the PRS could be achieved through a combination of “an increased rate of new builds, switching of commercial property to residential use, switching 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, which commissioned the report, said: “As the demand for private rental properties picks up following the pandemic, renters across the capital will struggle to find the homes they need and want.

“For all the efforts to support homeownership, the private rented sector has a vital role to play in housing so many Londoners.

“Today’s analysis demonstrates the folly of the mayor’s calls for rent controls in the capital, a policy which would serve only to freeze investment in the very homes renters need.”