A continued slowdown in the property sales market could lead to a rental boom, research by Alliance Fund has concluded.
The real estate fund analysed both the sales and rental markets during the economic downturn during the financial crisis of 2008/09 and the more recent slump resulting from the Covid-19 pandemic.
The research showed that at the start of the financial crisis in 2008, property sales volumes across England fell by 49.3% year-on-year. They then continued to fall by a further 3.1% in 2009 before rebounding by 6.4% in 2010.
Analysis of the rental market during the same period showed that privately rented stock available to tenants across England rose by 8.2% in 2008, representing an increase of 261,474 rental homes in a single year. This was followed by a further 7.6% annual increase in 2009, with the addition of a further 261,264 privately rented homes pushing the size of the stock to a record 3.705 million homes.
When market uncertainty of the Covid-19 pandemic took hold in 2020, the level of homes sold across the property market in England fell 15.9% – by far the largest annual drop since the financial crisis.
Meanwhile, the growth rate of the private rental sector had been falling steadily since 2009 and had actually been reducing in size between 2017 and 2020. However, when the Covid sales market downturn hit, the level of privately rented stock available across the market grew by 1.1% in a year – the first rise since 2016.
Analysing the market over the last two decades, Alliance Fund found its research showed sales volumes have increased at a rate of 4.7% per year when the market hasn’t been subject to an economic downturn, while the private rental market has increased by an average rate of 4.1%.
In contrast, during economic downturns, sales volumes have fallen by an average of 22.8% per year while the rental market has grown at an average annual rate of 5.6%.
“The jury is still out with respect to the current turbulence plaguing the property market and just what impact this will have in the long term on the ability of homebuyers to secure mortgage finance, as well as the knock-on effect to house prices if they can’t,” said Iain Crawford, CEO of Alliance Fund.
“However, historic market trends show that should the housing sector take a hit, the nation could be in for a rental market boom, as more and more of us remain reliant on the private rental sector in order to keep a roof over our heads,” he added.