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England’s housing market is seeing a seismic shift towards private rented property and away from home ownership – with a knock-on cost to the public finances.

Figures from the official English housing survey published on Wednesday show the number of households living in the private rented sector overtook those in social housing for the first time last year.

Almost 4m households now live in privately rented homes, and a quarter of the tenants are now subsidised by housing benefit, according to the annual survey.

Private renting is now the second-largest tenure in England, behind home ownership. Under two-thirds of households now own their own home – down from 71 per cent a decade ago.

The trend is being driven by the difficulties that many aspiring buyers experience in climbing on to the housing ladder because of high and rising prices, combined with the dwindling availability of council houses to rent. More than 1m have been sold over the past three decades through the Thatcher government’s Right To Buy policy of the 1980s.

The rise of buy-to-let mortgages has also boosted the supply of rented housing.

Emma Reynolds, Labour’s shadow housing minister, said private renting was becoming the norm for many young people.

“We need to build many more homes to keep up with demand. Owning a home is out of reach of many low and middle-income earners, and rents are rising faster than wages,” she said.

The government is encouraging developers to build more homes for rent. Last year, it promoted a “ build to rent” scheme offering £1bn of finance guarantees.

Yet the shift into renting is straining the public sector finances. The housing benefit bill has doubled in the past decade.

The number of households in the private rented sector receiving the benefit has risen by two-thirds in the past five years, with 390,000 more households in this category beginning to claim, the English housing survey found.

Lucian Cook, director of residential research at the property agent Savills, said this was a long-term challenge for the welfare state.

“For most younger people the private rented sector is the only option and that will create a longer-term problem of the cost of housing in retirement for today’s youth,” he said.

The sector also suffers quality problems. Private rented housing is the worst quality of all tenures, the survey found – a third of rented homes do not meet the “decent homes” standard set by the government.

Clive Betts, who chairs the Commons communities and local government select committee, said there was a case for more good-quality private rented housing. “Much of it is simply awful at the moment,” he said. “Landlords don’t take their responsibilities seriously. They think they can get away with it, tenancies are often on a short-term basis, and many tenants don’t understand their rights.”

Despite this, 83 per cent of tenants in private rented homes are satisfied with their accommodation, compared with 81 per cent in the social sector, the survey found.

Alan Ward, chairman of the Residential Landlords’ Association, called for “radical reforms to the way the sector is regulated”, particularly to “prosecute criminal landlords, rather than swamping the vast majority of good landlords with ever-more-costly red tape”.

Shelter, the housing and homelessness charity, said private renters comprised a “disproportionate share” of the people approaching its staff for advice every day. “Rented homes do not provide many families with the stability they need,” said the charity. “The market has developed unintentionally and largely unchecked, creating a wholly unsuit­able climate for today’s renting families.”

Dan Wilson Craw, a spokesman for the afford­able housing campaign group PricedOut, said many families with children were being forced to live in unsuitable rented homes, because they could not afford to buy.

“As long as home ownership remains unaffordable for people on ordinary in­comes, investors are en­couraged to speculate on houses and there is a failure to build more social housing, more people will become stuck in private renting,” he said.

However, the expansion of the rented sector had economic benefits, said Jonathan Portes, director of the National Institute of Economic and Social Research think-tank. “The private rented sector is filling a large gap and that’s a good thing, particularly for labour mobility as people move around the UK.”

It is not necessarily a good idea for the government to cater to the popular desire to own one’s own home, Mr Portes feels. “It’s not clear that home ownership for everybody is particularly good, either economically or socially.”

Kris Hopkins, the housing minister, said the data were collected before the government launch last year of its Help to Buy scheme, which subsidises homebuyers. Al­most 30,000 people had bought through the scheme so far, he said.

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