West Midlands rents are expected to rise as fewer new properties are put on the rental market according to the July 2018 RICS UK Residential Market Survey.
Demand in the West Midlands lettings sector has long outpaced the number of new properties coming to market but this month 18% more respondents* reported a fall in new instructions and is the ninth consecutive quarter in which this indicator has recorded a negative or flat number.
This pattern reflects the shift in the Buy-to-Let market in the wake of tax changes which are still in the process of being implemented, as smaller scale landlords exit the sector. Significantly, the drop in instructions is evident in virtually all parts of the country to a greater or lesser extent.
At the headline level the number of new tenants looking for a new home in the West Midlands grew in July, and as the number of fresh rental stock continues to decline, demand for rental properties continues to outpace supply.
The consequence of this imbalance is that rents in the region are expected to rise once again. In the coming three months, 36% more respondents expect rents to rise, and at the 12 month mark the West Midlands expectations are one of the strongest in the UK with rents projected to increase by 2%. This is also reflected at the five year point where rents are expected to rise by approximately 3%.
Looking at the West Midlands sales market, little has changed from June. It is perhaps no surprise that as speculations built ahead of the August Bank of England rate rise, the number of people looking to buy a home in the region subdued. The number of new properties coming to the market also shows little change in July, as the net balance remains flat. The survey also suggests chartered surveyors don’t anticipate much growth in sales activity in year ahead.
Despite the little change in activity, and stock levels remaining near all-time lows, the West Midlands housing market is stronger than other parts of the UK. Prices continued to firmly rise in the last month and expectations for the three months ahead remain resilient. London, the South East and East Anglia have seen activity and, now as a result, prices starting to fall, albeit slightly, in their regions.
Simon Rubinsohn, RICS Chief Economist, commented: “The impact of recent and ongoing tax changes is clearly having a material impact on the Buy to Let sector as intended. The risk, as we have highlighted previously, is that a reduced pipeline of supply will gradually feed through into higher rents in the absence of either a significant uplift in the Build to Rent programme or government funded social housing. At the present time, there is little evidence that either is likely to make up the shortfall. This augers ill for those many households for whom owner occupation is either out of reach financially or just not a suitable tenure.”
Abdul Choudhury, RICS Policy Manager, commented: “Our survey suggests that recent Government policy and legislation changes have impeded the growth of the Private Rented Sector (PRS), which is a vital part of a functioning homes market. Withdrawing tax breaks that small landlords relied on, placing an extra 3% on second home Stamp Duty, and failing to stimulate the corporate build to rent market, has understandably impacted supply.
“While the current focus is rightly on using regulation to improve the experience for tenants, Government must urgently look again at the PRS as a whole, including ways to encourage good landlords. Ultimately, Government must consider the impact of its policies, and if the wish is to move away from PRS, it must provide a suitable alternative. If they wish to improve PRS, as we have suggested by professionalising through regulation and the PRS code, there is justification to reconsider the approach to tax taken.”