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Moving Closer to Europe

The UK may be on course to leave the EU, but our housing model is becoming more aligned to European countries like Germany, where a greater proportion of people live in rental property, for longer periods. So, what can we learn from the rental market and regulation in these countries?

According to the ONS (Office of National Statistics), the number of households in the private rental sector in the UK grew from 2.8 million in 2007 to 4.5 million in 2017, representing an increase of 63%. Investment firm CBRE, says a fifth of households in the UK now live in the private rental sector and predicts that by 2040 the majority of people living in a major city will be renting their home.

As Brexit becomes a reality, the UK will actually move closer to countries like Germany and Denmark where two fifths of the population live in privately rented homes and perhaps even above Sweden, Austria and the Netherlands where three in 10 people rent privately.

These statistics are partly due to affordability in the UK, with first time buyers struggling to save a deposit to buy their own home, but even those currently living in the private rental sector are paying more rent than their European neighbours.

According to a 2018 Knight Frank report, the average monthly rent in London was the highest in Europe at €28.20 per square metre. This compares to Vienna, where the average price was just €9.40 per square metre and Berlin, where it was €9.80 per square metre.

One of the reasons that renters get a better deal in cities such as Vienna and Berlin is that both have rent controls in place. In Germany, for example, a ‘rent brake’ was introduced in 2015 to cap the price of new leases in areas where there was high rental demand. However, there have been many reports of shortcomings with this type of initiative and there remains a big question around rental caps – namely, if you restrict a financial incentive for landlords to invest in the sector, then you could potentially strangle the supply of property, which is counter-productive.

A more productive initiative could potentially come from France and Spain, where tenancies typically run for three to six years and while rents are charged at market rates at the outset, they can then only increase in line with inflation throughout the tenancy.

Whether or not the UK adopts any of these measures remains open to question, but a growing demand from tenants will provide a strong foundation for the buy to let market and a more European way of life as we say goodbye to the EU.


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