The number of private landlords as a proportion of the population more than doubled between 1991 and 2008. But politicians have yet to grasp the enormous consequences this has for housing and fiscal policy
We know the private rented sector has steadily grown in size over the last two decades and that buy-to-let borrowing is expanding rapidly. But we’ve never really known anything about who private landlords actually are.
This is why the Strategic Society Centre last week published a detailed, quantitative study on private landlords in the UK. What we found is that despite representing just 2% of the adult population, on every measure we could find, landlords are on average in a stronger position than other homeowners, tenants and the population at large.
Around one in three private landlords lives in London and the South East. The median total net property wealth of private landlords is £333,999 and the mean is £479,598. Most private landlords are strongly attached to letting as an activity, are financially secure and many (62%) say they could cope permanently with a 25% reduction in their income.
What was particularly striking is the enormous financial gulf between private landlords and tenants, despite their many similarities. The average age of a landlord is 48, compared to 32 among tenants. A similar proportion of landlords and tenants is in employment and their experience of unemployment or short-term contracts is also similar.
However, landlords earn more: gross monthly earnings are typically around £2,400 compared to £1,434 among tenants. The mean financial wealth of private landlords is £75,103 and the median is £20,500. Equivalent figures for tenants are just £20,500 and £398.
Given such economic and financial inequalities, in the context of highly inelastic supply in the property market, it is perhaps no surprise the research found the number of private landlords as a proportion of the population has more than doubled between 1991 and 2008.
These trends have big implications for housing and fiscal policy, which many seem only dimly aware of.
First, politicians are keen to boost home ownership and help first-time buyers in particular, as the controversial ‘Help to Buy’ scheme has shown. However, the assumption has been that building more homes will boost owner-occupation rates. But, given landlords are strongly attached to letting and they have enormous financial muscle, is there a risk they will carry on lifting their share of the housing stock even as politicians try to expand the stock available?
Do policymakers need to consider reining in landlords to ensure new homes in particular go to new homeowners? Do we need policies to tip the balance in favour of first-time buyers?
Second, given this financial chasm between landlords and tenants, the prognosis for ‘Generation Rent’ does not look good. Renting throughout working life and into retirement seems inevitable for many private tenants, as many forecasters are predicting.
But here’s the problem: few renters will ever be able to save enough into a pension to meet their rental costs in retirement, and pensioners in the private rented sector will – as now – require means-tested Housing Benefit paid for by the taxpayer.
This suggests the fiscal consequences of Generation Rent reaching pension age will be dire: the cost of Housing Benefit for pensioners to the Exchequer will go through the roof.
Indeed, given renters who save into a pension are ultimately making themselves worse off if they carry on renting throughout their life, this trend has seriously negative consequences for workplace pension reform and the government’s pension policy. Work & Pensions Secretary Iain Duncan Smith has said of pension policy that ‘it must pay to save’, but for Generation Rent, it simply never can.
In short, the growing private rented sector and buy-to-let represent dilemmas for UK fiscal policy. The 2% of the population who are private landlords could ultimately cost all taxpayers an awful lot indeed.
So, as part of the government’s long-term fiscal sustainability strategy, is it not time that politicians woke up and responded to the fiscal consequences of the UK’s growing private rented sector?
James Lloyd is director of the Strategic Society Centre
