Introduction

This chapter examines changes to the supply side of the private rented sector since rent deregulation in 1989 and speculates about likely trends in the first decade of this century. It focuses on the trend in overall supply, the extent to which there have been significant changes in ownership, and the extent to which landlords have been earning competitive investment returns.

There are six sections:

• • government policy aims in relation to the supply side;

• • the nature of the supply side in the two decades before deregulation;

• • specific initiatives designed to increase corporate ownership and their impact;

• • evidence about the way the supply side changed in the 1990s in general;

• • evidence about rates of return;

• • the implications of this evidence for the initial years of the new century.

Government policy aims

All main political parties now accept that the sector provides an important means of housing those who benefit from the flexibility that private renting can provide and those who do not want to tie up their savings in home ownership (Best et al, 1992). These include first time entrants to the housing market, including students and other newly formed households, as well as those who need to change their housing at short notice, such as job movers and people whose personal relationships have broken down. Flexibility can also improve the performance of the micro and macro economy by facilitating the movement of people into areas with labour shortages, and also by giving more housing choices to many young households who would otherwise have to borrow heavily to buy their own homes. If they buy instead, their high levels of indebtedness can significantly influence consumer demand when interest rates change, and hence amplify business cycles.

Recent changes in the labour market have increased the numbers of those who value this flexibility. Since the 1980s the proportion of heads of household aged under 30 who own their own homes has fallen. Greater proportions of tenants in the private rented sector are on above-average incomes than in previous decades. Although the private rented sector has always housed a wide range of households, its long-run decline up to the early 1990s was associated with the sector having an above-average proportion of households on low incomes and outside the labour market (Whitehead and Kleinman, 1986).