A history of the private rental sector

In a country where ownership of property is considered so important, a private rental sector that accounts for nearly a fifth of households (with another fifth accounted for by social housing) looks huge 1.

By today’s standards, it is – but the UK’s transformation into a nation of home-owners is a relatively recent phenomenon. Back at the turn of last century, social housing was very rare and almost three quarters of homes were privately rented 2.

Before the Great War

Ownership of property and land was still a wee bit feudal when the Victorian era drew to a close, with most people renting their homes, farms and offices from a few very wealthy people with big hats. Social housing had existed in some form for years, but most rentals were private.

Then, as Private Baldrick so eloquently put it: “a bloke called Archie Duke shot an ostrich because he was hungry.” World War 1 started, quite literally, with a bang. House building in the UK stopped and landlords took advantage of the sudden shortage with massive rent increases.

In response to this, in 1915, the Increase of Rent and Mortgage Interest (War Restrictions) Act was introduced. Rent was capped and some security of tenure was introduced.

The rise of social housing

The war ended in 1918, and the soldiers returned home to find that there weren’t very many houses to live in.

The Housing, Town Planning & c. Act of 1919 remedied this by compelling local authorities to build council houses. Along with this new alternative to private renting, the rent controls and security of tenure introduced during the war – which were meant to be temporary – made being a private landlord a lot less attractive. The number of people renting privately began to shrink, and the number renting socially began to grow. By 1939, the ratio was around 58% to 10%, with the remainder owning their own homes 3.

Of course, in 1939, we only went and had another war.

Look, can we please just stop having wars?

World war two brought the horror to Britons’ doorsteps in the form of the Blitz, which killed around 41,000 and caused massive damage to the housing stock of many of Britain’s cities. Following the Allied victory in 1945, more investment than ever in social housing was needed.

Further to this, home ownership became a viable prospect for a greater number of people. Longer-term mortgages with smaller down-payments became available, and as a nation, the UK became a little less ‘debt-averse’ – perhaps having withstood the Luftwaffe for eight months without crumbling had made everyone a little less cautious. In 1953, home ownership began rocketing skyward at a pace that would not slow for nearly forty years 4.

The 70s: the great property balancing act

In 1971, the number of people renting socially and privately was almost equal, and the number of people renting and owning was dead even. This was the first time in UK history that as many people owned property as rented it.

Private landlords were not popular. Gradual decontrol of rents had been introduced, and the infamous landlord Peter Rachman had spent the fifties terrorising his West London tenants, forcing them out of accommodation and replacing them with tenants whose rents were uncapped 5.

The Rent Act of 1977 put a stop to this, and further protection was afforded to tenants that same year with the Protection from Eviction Act 1977. However, this had the (perhaps) unintended consequence of making being a landlord unprofitable and unappealing, and the private sector continued to shrink.

The 80s: Right to Buy and the Housing Acts

In 1981, social housing reached its peak, accounting for 31% of UK households 6. Meanwhile, only 11% privately rented. However, social housing had not picked up enough to account for the slack in the private sector.

Councils had had the right to sell houses to tenants, but the idea had really got the wind under its sails in the early 1970s when Tory leader Ted Heath began to champion it. In 1970, 7,000 council houses were sold. In 1972, this figure had risen to 46,000 7.

46,000 was mere peanuts to Heath’s successor, Margaret Thatcher, however, and her ‘Right to Buy’ revolution began in 1980 with the Housing Act. Council tenants could buy their homes at a discount and realise the dream of owning capital – something that could be passed onto their children. Property ownership soared – some 1 million council homes had been sold by 1987 and home-ownership had increased to around 63% 8, very near its historic peak.

The problem was that councils weren’t rebuilding the homes they sold. The UKs rental stock was falling, and the private sector needed a makeover, fast.

The Housing Act 1988 introduced the Assured Shorthold Tenancy we know so well, and removed rent controls. Being a landlord was a viable business once again – it had hit its nadir, and was now climbing upwards. Furthermore, councils could pass on their housing responsibility to housing associations and registered social landlords. The Local Government and Housing Act of 1989 removed their obligation to hold housing entirely.

The shape of the modern housing market was set in stone, or at least fairly firm clay, and nothing has really happened since then that would alter it.

The recessions

Oh yeah.

Recession Number One happened in the early 1990s, and may have had a lot to do with why house building never really recovered to the heights it had once enjoyed. The recession itself had a negligible downward effect on house prices, but laid the groundwork for them to shoot back upwards; and shoot back upwards they did.

From the mid-1990s – a little earlier than in the rest of the world – prices started galloping skyward; high demand was fuelled by a growing population and bigger and cheaper mortgages, and intensified by a shortage of property.

Recession Number Two then hit in 2007-08, and this one really hurt. Houses plummeted in value, leaving millions trapped in negative equity. People lost their jobs. Desperate and failing banks upped foreclosures and repossessions, and in 2009, experts estimated that some 1 million houses could lie empty by the end of the year 9. On top of this, private landlords found that their businesses were suddenly struggling to turn a profit.

Going forward

The financial crisis resulted in a massive tightening of lending requirements, making it much harder for people to get a mortgage. On top of this, house prices are still close to the highest they’ve ever been 10.

Many turn to renting out of necessity, and many out of preference. The private rental sector is increasingly relevant in a country where people need to be on the move for jobs, and where many won’t get on the housing ladder until their 30s, 40s or even later.

It’s likely to change. People are still trying to find the balance between tenants’ and landlords’ rights, how best to regulate buy to let mortgages, and what place private renting has in the sector generally. If nothing else, history tells us that things are always changing. But the rental sector will be there, responding to social changes – it’s up to landlords to make sure that response is a positive, profitable and forward-thinking contribution to the UK’s housing market.

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Now, if you’re anything like me, assimilating 100 years of history will have made you a little peckish. Class dismissed!

References

  1. Table 101: by tenure, United Kingdom (historical series) [XLS]. DCLG. Retrieved on 8 May 2013 from https://www.gov.uk/government/statistical-data-sets/live-tables-on-dwelling-stock-including-vacants.
  2. 2011 Census Analysis, A Century of Home Ownership and Renting in England and Wales. ONS. 19 Apr 2013.
  3. Ibid.
  4. Ibid.
  5. Powell, G. “London’s Most Notorious Landlord: the Story of Peter Rachman (1920 - 1962)”. London Historians. Sep 2012. Retrieved from www.londonhistorians.org.
  6. 2011 Census Analysis. ONS.
  7. Wheeler, B. “What future for social housing?BBC. 4 Aug 2011.
  8. Table 101 [XLS]. DCLG.
  9. “What a waste.” Inside Housing. 30 Jan 2009.
  10. House Price Index, February 2013. ONS. 16 Apr 2013.

This information should not be interpreted as financial advice. Buy to let mortgage rates are subject to change. Speak to our advisors for a mortgage illustration.

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