London PRS supply gap to widen by 100,000 homes over 10 years

London’s private rental market is forecast to fall short of rising tenant demand by a further 100,000 homes over the next ten years.

A combination of a rising population, shrinking household size and a preference for rental in the increasingly unaffordable capital will drive demand for an additional 300,000 rental households between 2021 and 2031, JLL predicts in its recent London BTR report.

The entire private enterprise housing average annual supply would only meet 58% of this need, resulting in unmet demand for at least 100,000 PRS households, on top of the existing undersupply.

To prevent this widening supply gap, the build-to-rent sector would need to increase its annual supply of new BTR homes threefold. Over the last three years the sector delivered on average 5,400 new homes annually, contributing 33% of London’s new private enterprise homes supply. More recent BTR completions in 2022 include milestones at landmark schemes from Quintain in Wembley and Greystar’s Bloom in Nine Elms.

Broader housing supply in London has consistently fallen short of government targets, the London Assembly’s Housing Committee estimates the city needs 66,000 homes a year and the London Plan aims to deliver 52,000 homes a year.

While the London Assembly highlights need for affordable housing within these figures, private renting has been the fastest growing tenure, representing the largest growing demand. Over the past decade, 45% of new households in London were in the PRS, according to analysis of government figures.

This shift to renting is expected to continue, given the inward migration of young people and headwinds to home ownership, following the end of Help to Buy and in an environment of heightened interest rates and house prices. Rising rates also risk reducing the existing rental supply, deterring new buy-to-let purchases, with many small landlords seeking to exit the market, suggesting the need could be far higher.

BTR investors seeking to tackle this challenge committed £2.7bn to London projects last year, backing 10,000 homes in the city, as annual transactional volumes rose 46% year-on-year.

At the end of 2022, there were 37.800 completed BTR homes in London, accounting for just 3.5% of the city’s rental market. A further 27,600 with plans approved and under construction would see London rise to 65,400 over the coming years, adding at least £10bn further in investment.

Alice Smith-Hillard, director with Living Capital Markets at JLL, said: “The structural undersupply of rental housing in London shows no sign of improvement, in fact is worsening.

“Build-to-rent development is fundamental to addressing that gap, providing quality homes suited to the needs of that growing population.

“Investment in this sector is on the rise, achieving record levels last year, as institutional capital seeks to unlock new neighbourhoods across the city. Still far more is needed to really make a dent in that imbalance.”

Veronica Spanos McGill, senior research analyst at JLL, said: “Londoners face a declining number of rental homes on the market, while high sales prices and rising interest rates are pricing more potential buyers out of homeownership.

“Demand for BTR remains strong and has continued to support leasing activity across the city, with renters willing to pay more for high quality homes and access to amenities.”

Spanos McGill added: “Opportunities to replicate the successes of high end city centre submarkets are limited by the lack of suitable sites in central locations. Developers and investors are now turning their attention to a wider range of products and target audiences in outer London and the commuter belt, as Crossrail and HS2 open up new markets.”