Change in size of the London Private Rented Sector by Prime Minister (Total change below images)
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Like much of Margaret Thatcher's legacy, her impact on the housing market will be vigorously debated. However, we expect all will agree that the impact of the Housing Act 1988 was as profound as it was transformative. We'd like to take the opportunity here to give a quick overview of how the shape and size of the rented sector in London has changed by Prime Ministers before and after the Iron Lady.
Many are surprised to learn that at start of the twentieth century over three-quarters of the UK population lived in private rented accommodation. Experiences varied wildly, but for a great insight to the lower end of the spectrum in Walworth, London, check out the opening chapter of Charlie Chaplain's autobiography.
Over the course of the century home-ownership levels increased dramatically owing to the pursuit of political philosophies like the 'property-owning democracy' and 'homes for heroes', following the world wars.
Meanwhile in the private rented sector most landlords had to use “Protected and Statutory” tenancies which most agree put the tenants in the driving seat. This came about during the First World War when the government was keen to prevent workers being evicted from their homes as they were needed for the war effort. This remained the case for the next 60 years and was consolidated in the Rent Act of 1977. While this protected tenants, it has been argued that property owners were put off from letting out their properties by the difficulty with which they could regain possession of their property. This, along with the eventual sell-off of council homes created a big housing shortage.
The Thatcher government turned to the private rented sector to release more supply into the housing market. The Housing Act of 1988 was designed to change the balance of power between landlord and tenant in order to attract landlords, mainly by allowing them to regain possession of the property if they followed certain procedures.
The result of this can be seen in the chart below. The 1991 census shows the ratio of owner occupiers to social renters to private renters in London was 60:30:10 and by 2011 it was 50:25:25.
The chart above puts that in the context of the terms of each Prime Minister since 1963. We've looked at how the rented sector in London changed in size per year in office. Over the course of the Thatcher government, the sector did shrink on average. However, when viewed in the longer-term, it's possible to see her term in office as the point where the sector stopped shrinking and began growing.
The sector got an extra supply-boost following the housing market crash of 2008/9. Many people active in the market were lumbered with properties that they were expecting to sell on, but had to let them out, thus becoming "accidental landlords".
It would seem that all this increase in supply should lead to lower rents for all, but in reality the general trend is the reverse. While the amount of rented stock has increased, demand has increased even more so because the relative scarcity of properties to buy (given the reluctance of the above landlords to sell) and large mortgage deposit requirements have made renting the only option for many.
At the same, we think that renting privately has become desirable in its own right because of the flexibility it offers (see this Article
for more on this). Predictably, the result has been above-inflation increases in rent for most of London. So much so that a debate is now forming around whether controls should be bought into place to provide more protection to tenants. You might have heard "Rent controlled apartments" referred to in US TV shows like Sex and the City. Despite being the capital of free-market economics, New York City has very strong rent control laws. We'll be debating the pros and cons of such rent controls in London in next weeks article.