Has the private rental sector been shrinking?

An innovative measure of landlord property transactions shows the UK private rental sector has likely been shrinking for at least the last two years, but less quickly than other indicators suggest.

As landlords face pressures on profitability, it’s useful to know how many of them are selling up, and whether the stock of private rental properties is shrinking on balance. Sales of privately rented properties can be both an indicator of stress among landlords, and a trigger for stress more generally – for example through making renting more expensive, or through pushing down house prices.

But it is difficult to measure changes in the size of the private rented sector (PRS). It often requires linking different property-level data sets, and common identifiers between these data can be hard to match. Even when a match can be made, we need to make choices about how to define what counts as a property movement between the private rental and owner-occupier markets, versus properties changing hands between landlords.

There are a range of existing measures that use varying definitions of what ‘counts’ as inflows and outflows from the private rental market. Together, these measures suggest sales of private rental properties over 2022 are unlikely to have exceeded 100,000. Several of these measures focus on property outflows, with offsetting inflows harder to identify, and often lagged.

To better capture net changes in the size of the PRS, we have developed an innovative approach in which we estimate both inflows and outflows. Our measure:

• matches Land Registry property transactions with rental advertisements provided by Zoopla-WhenFresh to identify properties that have been sold and subsequently rented (and vice versa); and
• categorises these matches as inflows or outflows from the PRS, or inter-landlord flows, as shown in Chart A and defined as:
  • owner-occupier to landlord inflows are properties advertised for rent within four years of being purchased, which have not been advertised for rent previously;
  • landlord to owner-occupier outflows are properties sold within four years of being advertised for rent, which have not been advertised for rent since; and
  • landlord to landlord flows are either: (i) properties advertised for rent within four years of being sold, which have been advertised for rent previously; or (ii) properties sold within four years of being advertised for rent, which have been advertised for rent since.

While lagging and imperfect, our measure captures both inflows and outflows across a significant share of the private rental market. Due to the time lag between sale and rent, observations in the most recent four-year period are particularly subject to revision. But the measure is consistent with the flow of new buy-to-let mortgages (Chart B). And the overall trend of inflows has similarities with Hamptons’ landlord purchase reports (Chart B) – an existing estimate of landlord inflows.

Our measure indicates modest shrinkage on aggregate and across UK regions and property sizes. Chart A shows landlord outflows and inflows gradually converged over 2016 to 2020 and have now outstripped inflows for at least the last two years, but implies a more modest rate of PRS shrinkage than other measures suggest. These trends are broadly consistent across region and property size. Though, the post-pandemic peak in outflows shown in Chart A was more notable in London and the South East than other UK regions.

As with any estimates of PRS flows our measure is not without limitations, including:

• Incomplete sample – we can only analyse rental properties that are matched across the Land Registry and Zoopla-WhenFresh data sets.
• Risk of overstating outflows – properties sold to a landlord but not yet listed for rent could be reclassified as inflows or inter-landlord flows once they’re listed for rent, which means outflows could be overstated, especially in recent data.
• Imperfect transaction classification – some properties have complex transaction histories or incomplete rental advert data which can lead to misclassifications. For example:
  • properties listed for rent and then sold multiple times in succession are classified as landlord to owner-occupier outflows for all sales, instead of just the first sale. This could overstate outflows; and
  • properties sold multiple times between rental adverts are classified as landlord to landlord transactions. This could overstate the share of inter-landlord transactions and understate inflows if properties are not tenanted while sold.

Nevertheless, our measure is a helpful step forward in understanding developments in the PRS.

This post was prepared with the help of Katherine Blood, Elle Hughes and Jamie Waddell.

This analysis was presented to the Financial Policy Committee in 2023 Q2.

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