Housing tenure choices in 2040
The tenure composition of the UK has seen significant changes over the last century. From a post-war peak of 76%, the private rented sector (PRS) shrunk to less than 10% of households by 1988. Conversely, owner occupation expanded and by 1961, had become the UK’s dominant housing tenure at 43%.
This is still the case today, but after peaking at 71% at the beginning of the century, owner occupation has continuously declined and currently accounts for 63% of households. Meanwhile, the PRS has expanded, more than doubling in size since the turn of the century. A fifth of UK households now live in the sector, although this is considerably higher in some of the major cities. In Manchester, for example, almost a third of households are privately rented (Figure 3).
Figure 1: Long term trends in tenure, England
Source: Ministry of Housing, Communities and Local Government (MHCLG)
The recent growth of the PRS and the subsequent decline of home ownership, has been fuelled by a combination of political, social and economic factors. One of the main drivers is the affordability barrier of home ownership. A combination of significant house price growth and tighter mortgage regulation following the ‘credit crunch’ has meant that the average deposit for first-time buyers has risen from £2,200 in 1998 to £26,000 currently. This will continue to constrain home ownership, particularly for low and middle income earners.
Figure 2: Average first-time buyer deposit and growth of the PRS
Source: Council for Mortgage Lenders, MHCLG
In addition, changing lifestyles mean that major life events such as getting married or having children, which often drive the decision to buy a home, are being delayed. Data from the Office for National Statistics shows that the average age of first marriages has increased from 22 and 24 for women and men respectively in 1970, to 31 and 33 respectively today. The average age of first-time mothers has also risen from 24 in 1970 to 29 today.
These factors are contributing not only to the overall size of the UK’s PRS, but also its composition. Generally, tenants are becoming older, with a quarter of renting households aged between 35 and 44 years. This is up from 16% in 1996-1997. This maturity also means more families are living in privately-rented accommodation. Couples or lone parents with dependent children now account for a third of renting households, up from 22% in 1996-1997. A lack of social housing provision has also contributed to growth of the sector, with an estimated 1.5 million (28%) private-rented households now receiving housing benefit.
These factors will continue to drive the growth of the PRS, although the rate of growth might slow. The ONS indicates that the number of households in the sector increased by 1.2% in 2015-2016, compared with a peak growth rate of 9.2% in 2005-2006. It’s difficult to know what will happen next, but either way, growth of PRS households will still translate into a significant increase in PRS households in absolute terms. This will be particularly acute in our cities where young people, attracted by the proximity and availability of jobs, are driving a resurgence of city centre living.
Applying the moderate 2015-2016 growth rate to Manchester, for example, will translate into an additional 23,000 rental households by 2040 – only slightly fewer than it had in total in 2001. Across major cities, the proportion of PRS households has typically increased by 10% to 15% over the last 20 years. If that pace of growth continues, then (combined with social renters), the majority of households will be renters in major cities by 2040.
Figure 3: Number of PRS households and proportion of total households, UK cities, 2001 and 2016
Source: 2001 Census and Experian (2016 estimate using census data)