Well we are half way through the year in terms of property price and rental reports this year, so I thought it would be useful to see how property prices and rents actually compared to forecasts and any revised forecasts for the rest of the year.
Update on rental price forecasts: Who forecast what for 2014?
Savills forecast different types of rental markets for 2014:-
Belvoir forecast a 2% increase for the UK, with a 1-2% increase for Wales and a static to 2% increase for Scotland so similar to the 2% increase forecast by Savills.
Hamptons predicted a 1.7% increase in rents and according to Knight Frank “In central London, prime rents have underperformed the national average, with an overall decline of 1.7% in the 12 months to October 2013.” Forecasts for this year across the board for rents were 2%.
So overall we are looking at the forecasters suggesting rents would rise this year by 2%.
What are the actual changes?
To try and compare rental forecasts to what’s actually happened isn’t as easy as property prices as there isn’t an ‘overriding’ index like the Land Registry which measure rental values.
However, the closest we do have is the ONS Private Rental Index which suggests so far this year:-
Private rental prices paid by tenants in Great Britain rose by 1.0% in the 12 months to June 2014.
Private rental prices grew by 1.0% in England, 1.1% in Scotland and 0.2% in Wales in the 12 months to June 2014.
Rental prices increased in all the English regions over the year to June 2014, with rental prices increasing the most in London (1.4%).
The Belvoir Index which measures advertised rents each month (on a three month rolling basis) compared to the previous year, also compares forecasts to actuals and suggests a 1% increase for Wales, a 2% increase for Scotland and no change for England. So pretty close to these averages.
The LSL index which measures all rents new and existing suggests “The average residential rent across England and Wales is now 1.4% higher than in June 2013. In absolute terms, this amounts to £747 per month, up from £737 per month in June 2013.” So bang in the middle of ONS and Belvoir.
This analysis also suggests that although rental rises have been forecasted to be slightly higher than average, they aren’t far off and forecasters in this market have performed better, in the main, than those forecasting house prices!
What are the implications of rental increases so far for 2014?
The key issue for rents is the ‘battle’ between inflation and wages. Currently inflation is winning hands down. Overtime inflation tends to increase around 3%, sometimes a bit higher, sometimes a lower. Wages on the other hand are scarily pretty static.
In June 2014 the inflation figure was +1.9%. This means the ‘cost of living’ we hear so often about at the moment is up by around 2%. So for tenants, their cost, on average, of what they buy will be 2% more than last year. This isn’t a problem as long as average wages have increased by 2%. It would also allow landlords the room to move their rents up in line with inflation – as their cost of living and the cost of letting a property will be up by 2% too.
The biggest problem we have now and have had since the credit crunch is wages are not keeping up with inflation, which means both tenants and landlords are being heavily squeezed.
Tenants in the social sector are suffering most
What many people don’t realise who comment on the rental market is in the social sector, so those renting from housing associations or the council have to pay agreed rental increases each year. This includes anyone who has a shared ownership property and has part bought and is part renting.
So since 2007, their costs have increase by inflation +1% or more in some cases. Average rents in England were £61.62 (DCLG) and are now £78.78. That’s an increase of £17.16 per week and for some more money is having to be paid out for the ‘Bedroom Tax’ if they have a spare bedroom.
That’s an increase of nearly 28% in England.
In the private rental sector things are very different. Since this time, ONS figures estimate private rents have increased much more in line with wages.
ONS estimate an increase of 7.3% in comparison.
Of course, rents are much less, so just over £4,000 in the social sector versus £8,000+ in the private sector. But still the impact on social tenants has been very hard, whereas private tenants have done, in comparison, pretty well.
The reality is private rents are reacting to wage growth and according to ONS: “pay including bonuses for employees in Great Britain for March to May 2014 was 0.3% higher than a year
earlier, with pay excluding bonuses 0.7% higher.”
Wages not rising in line with inflation is a real disaster for tenants from a general cost of living perspective, but the only real conclusion that can be made about rents currently is they are the one ‘silver lining’ in the cost of living crisis.
Rents are varying according to wages, in the main, not inflation.
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