The Philosophy of Renting

There are many well-known sayings that crop up whenever we think about home ownership. "An English(wo)man's home is his(/her) castle"; "I have to get on the housing ladder"; "When I can buy rather than rent, I can stop throwing money away".

Belief systems and knowledge is passed down from elders to youngsters, from parents to children, from teachers to pupils. So those new to the housing market are soaking up information from wherever they can to try and figure out what to do.

But has there been a wholesale shift in thinking? The data would suggest there has, at least in the UK.

According to the English Housing Survey 2018-19 (published by the Ministry of Housing, Communities and Local Government), ownership occupancy reached its peak in 2003 at 71%. It has since declined to 64% in 2013-14 and remained at that level ever since.

The report goes on to say: "there are now almost equal proportions of 25-34 year olds living in the private rented and owner occupied sectors". This figure hovers at 41% for both sectors.

Futher to this, in 2008-2009, 7% of 55-64 year olds were living in the private rented sector, whilst in 2018-19 this has increased to 10%.

So, not only are young people setting out on their property journey looking to the private rented sector, but so are the older demographic that traditionally sought home ownership as a cornerstone of their everyday life.

So what could be the reasons for this?

When we consider Knight Frank's Multihousing 2019 report, a curious trend presents itself. As you can imagine, there is a predictable reason why most people decide to rent, quoted as: "The majority of respondents highlighted the lack of a deposit for a mortgage."

As we all know, the cost of childcare, increasing costs of living, increasing pressure on pension contributions etc., it's becoming increasingly hard to save for a large deposit.

But interestingly, the "Baby Boomers" (defined by Knight Frank as being age 65+) cite it more important to be able to downsize due to "changing circumstances" (read children leaving home). Another combined reason for this is to release equity to be able to have a better standard of living, partly due to the increased retirement age, as well as the fact that people are statistically living longer.

Also notable is the increasing realisation across all age groups that rented accommodation "allowed them to live in an area they could otherwise not afford".

The iGens' (Age under 25) motivation are "more linked with east of movements, with "flexibility" and "not wanting to be stuck in one location"due to the changing workplace environments such as working from home, remote working and being geographically mobile for employment opportunities.

European Models.

According to Statista: "More developed European countries, such as France or Germany, tended to have a lower home ownership rate". Germany comes in lowest at a home ownership rate of 51.4%. The fact that large portions of Germany were left in rubble after WW2 and that a lot of Germans are risk averse explains this statistic somewhat however.

But more generally, there are 3 main reasons (explained by the Financial Times) that account for the higher proportion of renting in these "more developed countries":

1. Greater protections for tenants
2. Caps on rent rises
3. Longer tenancies

It seems logical, that Brexit notwithstanding, we will move towards a European-style renting model. We have recently seen broad-brush legislative changes for the increased protection of tenants (tenant fee ban, revisit of section 21, redress schemes, deposit caps etc). Caps on rent rises have been discussed in parliament but have as yet failed to gain any traction. Longer tenancies are available (suggested to be no longer than 3 years minus one day for flexibility reasons) but they are just not the norm.

Conclusion

There are obvious benefits to renting, not limited to the option of renting a house which complies to a standard that might not otherwise be affordable, in a desirable area that otherwise might be attainable and to be protected from the costs of repairs. Further to this the flexibility of movement and the possibility to save or invest in different financial vehicles other than a 30, 35 or even 40 year mortgage seems like an obvious option to a growing group of people, across various demographics.

Knight Frank has estimated that the private rented sector will increase from 20.6% today to 22% by 2023. This would mean that we are in need of 560,000 additional rental units in the next three years. This is a tall order even if all new houses built over the next 3 years were allocated to rental housing, which as we can see from the previously mentioned 64% owner-occupied figure, it won't be.

This data suggests that attitudes are changing to being more comfortable with renting as a palatable alternative to the once 'base need' of owning a home. Is it for the betterment or the worsening of society? Only an individual can answer that question as to their aspirations and comfort associated with this decision.

As always, there are arguments for either philosophy, but as often comes down to something based largely on emotion, it's a matter of personal choice.

References:

Statista.com (2020). "Home ownership rate in selected European countries in 2018". https://www.statista.com/statistics/246355/home-ownership-rate-in-europe/ Archived from the original on Feb 18, 2020. Retrieved 20 February 2020.

Knight Frank (2019). "Multihousing Survey 2019". https://content.knightfrank.com/research/707/documents/en/the-uk-tenant-survey-2019-6118.pdf Archived from the original on Feb 08, 2019. Retrieved 20 February 2020.

Financial Times (2019). "What the UK can learn from a European-style rental model". https://www.ft.com/content/584d77be-1db7-11e9-a46f-08f9738d6b2b Archived from the original on 25 January 2019. Retrieved 20 February 2020.