At the very time when fewer and fewer people are able to afford home ownership, the future for tenants seems far from bright… in fact it seems very worrying.
If you are a tenant it is vital to consider two things:
- Do you have a chance of becoming a homeowner at some point?
- If not, do you have a plan to manage your future as a tenant to minimise the downsides?
Going forward, tenants will increasingly need to adopt a serious business-like approach to their accommodation needs, a bit like how people think about and plan their education and career.
Inherent wealth disadvantage
Your biggest disadvantage as a tenant is the inherent wealth deficit you will face simply by being a tenant rather than a home owner.
As a tenant you pay rent to occupy your home but you have no ownership rights. The capital value of your home belongs to your landlord and your rent keeps that capital asset in the hands of your landlord who will benefit from any capital growth.
Capital values can decline in a house price crash or downturn but the average value of homes has grown spectacularly since the 1960s.
Rent is good news for your landlord, but not so good news for you.
No large capital asset
By paying rent without owning the capital asset which is your home, you are simply paying for a roof over your head.
If this lasts for a lifetime, the disadvantages will include:
- Your home will not be a large capital asset which belongs to you subject to any mortgage on it
- You will not reach a point where you have paid off any mortgage and have a large capital asset at your disposal for family, investment, business, leisure or pension purposes.
More people renting
The downsides of renting will have wider reach – the number of people renting is rising fast due in the main to unaffordability of homes in many parts of the country.
The percentage of households privately renting increased from 13% to 20% in the 10 years to 2017 (DWP’s Family Resources Survey 2016-17).
Further negatives lie in the story of rent:
- Apart from the occasional pause, rent is increasing incessantly
- In expensive parts of the country such as London, tenants are spending an increasing proportion of their earnings on rent.
In the 10 years to 2017 average rent per month increased by 19% (Hometrack). During the same period, average earnings per week actually fell from £463 in 2007 to £458 in 2017 (ONS).
Rents set to go on rising
The UK population is expanding fast, Brexit or no Brexit, with the population set to increase by 3.5 million over the next decade (ONS).
Not enough new homes are being built…putting pressure on rents.
Most new accommodation being built is of the high rise type, with characteristically high maintenance costs…which will inflate rents, especially as blocks become older over time.
The move to “lifestyle tenancies” – where tenants make a payment which includes rent and an element for “services” such as bills, cleaning and recreational facilities – is also likely to inflate rents.
The dangers of build to rent
There is also the rise of build to rent (BTR) where large private corporations – such as developers, insurance companies and supermarkets – will become major landlords but, unlike councils or housing associations, will not be obliged to charge relatively low social rents.
If there is sufficient competition between BTR landlords, rents could be kept low – a bit like supermarket food – with corporations being prepared to make relatively modest returns over a long period.
However, things could easily go the other way…continued shortage of housing could operate to escalate rents, worsening issues of rent affordability – possibly in a context of subdued wage growth and/or constrained government spending on welfare benefits.
The ultimate consequence could be the growth of greater homelessness and rough sleeping.
Homelessness has been increasing in recent years.
There are 320,000 homeless people in the UK (Shelter), 4% higher than last year.
The number of rough sleepers has grown for 7 years in a row according to Shelter.
If you have any chance to become a home owner it makes sense to make that chance a reality.
Being a tenant offers the benefit of flexibility and in many cases it is cheaper than homeownership in the short and medium term.
Long term however, the fact that rent is basically “dead money” lays bare the fundamental weakness of being a tenant.
The future for tenants is scary; if you are a tenant and not scared, expect to be increasingly scared in the not too distant future.
Say no to being a tenant forever (how to escape the tenant trap)
Best time to buy (a look at the ideal time to buy a property )
Homeowners are investors (the investment benefits of homeownership)
Why become a homeowner (the many benefits enjoyed by homeowners)
Why renting is super stupid (rock solid reasons why you should buy not rent)
Easy home ownership (10 super-powerful reasons for homeownership)
Are you a tenant or know a tenant? How do you see the future for tenants? Please leave your questions, observations or comments below.
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Rebel Property Coach
My website is: www.rebelpropertycoach.com