The number of families renting smaller homes has grown by over three percentage points in H1 2023, while those renting larger homes has dipped by around the same amount.
Property data and analytics company Dataloft, part of the PriceHubble Group, gathered statistics on families with a household income between £30,000 and £70,000 per annum in conjunction with the size of homes rented from H1 2019 to H1 2023.
The percentage of families renting a home with three or more bedrooms declined to 50.5% in H1 2023 from its highest point of 56.8% in H1 2020 and from 53.6% in H1 2019.
The number of families renting one- or two-bed homes rose from 43.2% in H1 2020 and 46.4% in H1 2019 to 49.5% in in H1 2023.
BTL Insider asked industry professionals how this would impact landlords with larger houses in their portfolios and what other elements property investors with these assets should consider.
Jonathan Samuels, CEO at Octane Capital, commented: “It’s unsurprising that renting families are having to downsize, given cost of living and rental increases.
“Landlords with larger properties are likely going to have to reconsider their investment strategies and consider the makeup of their portfolios in line with current demand.
“We have already seen the trend of landlords converting large houses to HMOs on the rise, and these conversions may increase further still if larger, single-unit properties fall further out of favour.
“Conversions are also an opportune time to rectify EPC issues that larger houses invariably suffer from — this leads to enhanced mortgage availability and future-proofs against EPC requirements heading the landlords way.”
Howard Levy, director at SPF Private Clients, added: “Higher rents are pushing tenants towards smaller properties in order to maintain their ongoing affordability; larger houses are still in demand, however many landlords have converted these into HMOs and rent out the properties room by room rather than as a single dwelling.
“The returns from these are much higher and many find that the increased demand for a room rather than a large house means there are fewer voids and, even if one room isn’t let, the income from the remainder still covers the costs for the landlord.
“Energy efficiency, while everyone views as an important future requirement, has now become less urgent compared with getting through an era of (relatively) high interest rates, along with higher taxation.
“The funds that were earmarked for enhancing efficiency of properties are being utilised elsewhere, given the government’s change of stance on EPC ratings in the short term.”
Roger Morris, director of sales and distribution at Tandem Bank, gave his personal opinion as a landlord: “The affordability challenge faced by families in this income bracket is a key factor.
“With letting agents emphasising affordability post-household expenditures, prospective tenants are often limited to smaller properties.
“Affordability constraints are driving families toward one- and two-bedroom homes, both for new tenancies and when seeking to downsize to manage monthly cost expenditures.
“For landlords owning three- and four-bedroom properties, the evolving market may necessitate strategic decisions; converting larger properties into HMOs presents an opportunity to generate increased rental income, however this shift may also reflect the growing challenge for families in securing larger homes within their financial means.
“Addressing energy efficiency is another dimension impacting landlords: while improving a property's energy efficiency can significantly enhance its value, it simultaneously increases the rental charges.
“This dynamic places additional strain on tenants, making larger properties potentially less affordable ; landlords, particularly those with older Victorian properties in the north, may face limitations in undertaking major energy efficiency improvements due to cost constraints.
“The current scenario presents a unique landscape in the rental market, with demand reaching unprecedented levels and supply at historic lows.
“As families navigate the delicate balance of affordability, landlords are urged to adapt and explore innovative strategies to meet evolving tenant needs.”
