A recent report on the private rented sector warns that current returns for residential landlords are very low once costs and inflation are taken into account, and despite headline reports of rising rents, there will be less new rental property to meet increasing demand.

Prepared by Michael Ball, Professor of Urban and Property Economics at the University of Reading, the report highlights that rents remain significantly below their early 2008 levels, when adjusted for inflation. The Report used a new economic model fed with financial data from over 200 landlords.

Following a survey of landlords costs and returns, the Report found that present rent levels do not cover landlords expenses when all factors are taking into account, including refurbishment and borrowing costs, agents and legal fees, voids and arrears, energy and safety certificates, repairs, depreciation and regulatory compliance. Additionally the tax burden on the private rented sector is much more than on other types of tenure, averaging £1,000 a dwelling.

Sharp real falls in the value of their properties over the past four years have pushed total annual returns for many landlords into negative territory.

The report warns that the consequences for tenants will be ‘grim’ as they face increasing rents and a chronic shortage of properties. Economic recovery will also be significantly held back by a lack of affordable rental housing. It calls for Government reforms to the taxation and regulatory treatment of the sector to alleviate pressures on rents.

Professor Ball said: “There is much hype about the private rented sector at present, but the reality is that landlord returns are generally poor and with a weak economy, are likely to stay that way. Investment in the past was driven by rising house prices, now there is a need to rethink taxation and regulation so that rental returns come to the fore at rent levels that are affordable for tenants.”