By 2015, 17% of households will live in privately rented accommodation, up from 14% at present, predicts Capital Economics.
Ed Stansfield, chief property economist at Capital Economics, says the case for further growth in the sector hinges on a shift in tastes and preferences among UK households and/or a shift in housing policy.
He says: “Over the next three to five years, we think the most likely scenario is that the private rented sector will continue to expand. By 2015, it is plausible that 16% or even 17% of households will live in privately rented accommodation.”
He believes the recent surge in the number of households living in the private rented sector reflects three main drivers: rising student numbers, rapid rates of immigration and a rise in the numbers priced out of owner occupation by the house price boom and the subsequent squeeze in credit conditions.
He says: “Although the pace of demand growth from both students and immigrants may well slow in the next few years, we think it unlikely that the change in demand from either of these two groups will turn negative.
“Over the next three to five years, there are also at least three reasons to think that demand from involuntary renters is more likely to rise than to fall.”
Firstly it believes it may well take several years before house prices fall back to levels which makes homeownership a realistic option for many mid-to-low income households.
Stansfield says: “Second, falling prices will also increase the strains on mortgage lenders’ balance sheets. Thus, even once prices reach a floor, credit conditions could remain tight for quite some time.
“Third, the public sector spending cuts will increase the number of disadvantaged households and create a social housing shortage, resulting in an increase in homelessness and overcrowding, but also boosting private sector tenant demand.”
He says it is plausible that inadequate retirement incomes could trigger higher demand for privately rented accommodation from retired households.
But he says: “With little hard evidence that homeownership aspirations in the UK are fading, the most likely driver of medium-term growth in the private rented sector would be if the Government opted to reduce social housing provision.”