Bristol Buy To Let Market Update
In this update we turn to broad question of housing affordability and by the same token the affordability of rents for tenants. First a summary of the sectors available for buy to let investors in Bristol.
The Bristol Property Market By Sector
The growth in population and the strong economy in Bristol have generated a high level of demand for housing and new accommodation in the city. In broad terms this consists of three sub sectors:
First the student market where specialist developers are getting involved with high specification accommodation. A recent report from real estate adviser Savills highlights Bristol as one of the 15 towns and cities rated as first class investments for student accommodation.
Second the market for new waterfront and city centre developments has continued to grow with the new mixed use development at Wapping Wharf and conversion of former blocks at 28 Baldwin Street, Number One Bristol at Lewins Mead and Beacon Tower in Fishponds. In addition there is a planning application for the regeneration and redevelopment of older industrial buildings in the Redcliffe Street area of the city centre.
Third private sector housing where the demand for rented accommodation continues to be strong. This is the sector that most buy to let investors are interested and growth in the sector continues to be strong . According to the 2011 census the private rented sector increased from 12.2% of accommodation in Bristol to 24%. This compares with 15% of housing stock owned by the city council, 55% owner occupied and 6% by housing associations.
Housing and Rent Affordability In Bristol
Despite the buoyant economy Bristol is a city where the affordability for home buyers (the ratio between average house prices and average gross local earnings) is 7.8 according to the Lloyds Bank Affordable Cities Review. This places Bristol 13th in the list of least affordable cities where the average affordability ratio is 6.6. The least affordable city in the UK is Oxford while Bath is placed 5th in the league table with an affordability ratio of 9.77. A recent report on housing published by insurance company Homelet found that the monthly rent for new tenancies in Bristol was £904 in 2015 compared with £767 in 2014, an increase of around 18%. (Note: Because this excludes existing tenancies the overall average is likely to be less than 18%)
City of the Moment
In January 2016 The Times property supplement described Bristol as “City of the Moment” citing an the average increase in house prices in the past year of 12.8% placing Bristol third in the league table of English cities behind Cambridge and London at 14.4% and 13.8% respectively. The average rental yield (rents divided by house prices) in Bristol is around 5%. This is comparatively low compared with the top performing cities for rental yield such as Liverpool, Glasgow and Manchester. However Bristol landlords have the benefit of a higher growth in property prices than most other cities.
Comparison with the UK Averages
A recent report from the Royal Institution of Chartered Surveyors (RICS) found that on average house prices will rise by 4.7% per year over the next five years and rents will outstrip wage increases rising by 5% a year. The RICS report concludes that “should house prices continue to rise faster than average incomes, aspiring first-time buyers will find it even tougher to get on to the property ladder in the new year. The problem would be compounded if rental costs continue to rise at an even faster pace as tenants will have to spend a greater proportion of their incomes on housing costs and will have less to put away towards a deposit.”
There seems to little doubt that demand for rented accommodation in Bristol will continue to increase because of the growing population the strong economy and the under supply of new housing in both the privately owned and social housing sectors. In addition the buoyant local economy and relatively high wages will maintain the annual increase in house prices and rents in Bristol at above the UK average.
However one of the key questions for buy to let investors is will the money available to tenants for rent continue to drive the recent high increase in rents in future years? And some analysts are already asking if a correction in house prices is due to happen and if so when? In these respects Bristol buy to let landlords are better placed than most other parts of the UK.