1. The Future of the Private Rental Sector The WMBUS Landlords Conference Kate Faulkner BSc(Econ) MBA CIM DipM

2. Agenda Impact of the recession on the West Midlands PRS Expansion of the Private Rental Sector Risks and rewards of PRS Opportunities for landlords to work with Local Authorities and Housing Associations

3. Understand future – need to understand what’s happening now

4. The recession and impact on PRS Reduce wealth, jobs, confidence Prices fall, lenders panic and tenants struggle to pay rent

5. West Midlands Property Prices Fell at the same rate as other areas, even London Midlands, North and Wales, slower to recover

6. But the PRS sector survived…. Reduced people’s confidence & ability to buy Increased people’s need for mobility & flexibility Increased the demand for rental accommodation Increased the time tenants stay in the rented sector – Reduces a landlord’s voids Demand for rental properties has increased

7. A poorly performing economy effects tenants ability to pay rent

8. Unemployment rates can hurt PRS Office of National Statistics Good landlords & LAs work together to reduce evictions

9. Average earnings = rent they can pay UK gross disposable household income (GDHI) – £16,000 per head in 2011 West Midlands – £14,400 per head in 2011

10. Impact of recession on rents Rent rises have to be ‘put on hold’ – Even if demand is higher than supply – Well maintained properties go first Increase in tenant rent arrears – Protect with insurance Rents underperform versus inflation – Problem for those relying on rents for a pension Poor rental income growth & tenant arrears – Can lead to lack of maintenance – ‘Deals’ struck between landlord and tenant No maintenance, no increase in rent

11. Rents fell back in 2009/10 http://www.ons.gov.uk/ons/rel/hpi/index-of-private-housing-rental-prices/historical-series/ iphrp-article.html#tab-Rental-prices-in-England-and-its-regions--2005-2013-

12. Maintenance is critical to PRS success Example of a Victorian terrace over 15 years – £500 to £750 per year general maintenance – One new boiler: £3,000 – One new kitchen: £4,000 – Two new bathrooms:£6,000 Depending on state of property – Re-wiring, damp proof course, new windows and/or roof Without regular maintenance – Insurance company may not pay out – Mortgage lender may question re-valuations – Property is likely to rapidly lose value and incur higher emergency costs

13. LHA caps hardly effected West Midlands Source: Shelter

14. LHA Rates similar to PRS Two bed £460 per month Three bed£511 per month

15. LHA Rates similar to PRS Two bed £511 per month Three bed£550 per month

16. LHA Rates similar to PRS Two bed £638 per month Three bed£741 per month

17. Summary of the recession Helps explain the ‘risks’ of buy to let Potential 20% fall in capital value Potential 5-20% fall in rents Demand goes up Be careful not to let maintenance standards slip Local authorities who understand PRS can help tackle recession issues with good landlords – And landlords can secure a good income Can secure 6-8% yields on LHA rates

18. Future of PRS in West Midlands

19. West Midlands population changes England 27% growth versus 20% growth in W. Midlands Estimated 16% increase in households

20. Check supply versus demand

21. Supply increases can affect PRS rents Birmingham City Council

22. Property prices still to recover

23. Property prices need to recover Definitely some bargains still to be bought Potentially good rental yield opportunities 8%+ Savills forecast 11% rise to 2017 in Midlands

24. Unemployment rates on the decline Office of National Statistics National average is 7.7% Beware of interest rate rise! Rates back to 5-7%?

25. Future rental trends More people are selling up and renting in retirement – West Midlands has quite a young population More single adult households – Average household size almost halved since 1911 (four to two) – West Midlands size 2.6 Tenants want a ‘home’, not a temporary place to stay Estimated PRS will grow by a 20% to 2017 – Help to Buy unlikely to impact on PRS – Cultural change, not just affordability

26. Risks and rewards Capital growth Prices & rents Interest rates Rental income Equity level Gross & net income Exit Life events Inflation Government/LA ControllableNo Control

27. Opportunities of work with West Midlands Local Authorities

28. Why I rent to my local authority Flat in Reading Invested because of my husband’s job He is now home based We had a choice – Rent privately and maximise the rent Have all the risks associated with voids, non-payment – Rent to a Local Authority, cover our costs Be paid directly Have fewer, if any, voids

29. What can they offer you? 30,000 potential tenants on a waiting list Help to identify needed properties Help and advice on the 100+ legals to let a property MLAS accreditation – Cost effective workshops – Direct communication with LAs – Access to individual LA “deals and discounts” Help ensuring you get paid – Direct payment – Tenant Credit Union Accounts with direct debits

30. What do they need in return? Accredited by MLAS Decent homes! – Youngsters like new builds – Older tenants need one beds Great EPC ratings – No condensation or damp – Potential LA incentives or green deal – Lower bills = more can afford rent – Can still legally rent it out in 2018

31. Summary PRS is expected to grow – Culturally acceptable – Bargains while prices recover – Rental income can be protected through LHA Manage PRS risks and rewards West Midlands LAs – Want to work WITH landlords – Offer free help & advice Latest legal changes to what tenants need/want – Variety of schemes to secure your portfolio success