Generation Rent sees increases of 6.3% on average whilst being told its disinflation

Today has seen the publication of new figures for rents in the UK private-sector and they provide an example of “And the beat goes on”. Indeed as i will discuss they provide quite a counterpoint to the UK inflation figures which only on Tuesday told us that the headline CPI rate of inflation was -0.1% or that we are officially in disinflation. Indeed when a rental measure of inflation is added to the numbers as a proxy for owner-occupied housing we only get to this.

CPIH (not a National Statistic) grew by 0.2% in the year to September 2015, down from 0.3% in August 2015.

So you get the impression that rents are not doing much at all or at least not making much difference.

Rental inflation surges again

The latest numbers from Your Move and Reed Rains tell a very different story.

Average rents now stand at a new record of £816 per month, after rising by 1.6% between August and September.

So we immediately get a very different story to that presented in the official inflation data as those who pay rent presumably have steam coming out of their ears. This issue is exacerbated even further if we look at the annual numbers.

The pace of change is even clearer on an annual basis – up 6.3% over the last twelve months, from £768 in September 2014.

What about affordability?

Here we see a completely different situation from those who purchase a house as the Bank of England effort to reduce mortgage costs most represented recently by the Funding for Lending Scheme benefited the owners who rent out houses and flats rather than the renters. Did they pass the gains to them on?

Rents are now almost a quarter (24.4%) higher than in January 2010, while the index of CPI inflation is just 14.1% higher over the same period. This means rents have risen by 10.3% in real terms since the start of the decade.

So no and the situation is worse if we use the Retail Price Index over that period and it was only yesterday that we were reminded that wages have underperformed CPI inflation in the credit crunch era.

median hourly pay for employees aged 18 and over in London fell by 10% in real terms.

Now that overstates the issue as it was from 2008 so some of that is not a like for like comparison and it is a London number but other estimates of real wage falls have been in that vicinity.

Even if we move to now and observe that wages are now growing at around 3% per annum we see that increases in rent are more than double that at 6.3%. Is virtually all the real wage growth being pushed into housing/rental costs?

The rentiers

The owners of the properties seem by contrast to be doing rather well.

Landlords see gross rental yields rise to 5.2%, while rising property prices take total annual returns to 9.4%

At any time those are good returns but in an era where bonds yield so little (UK 10 year Gilt yields 1.8%) it stands out like a sore thumb. This is reinforced by the fact that the other side of the equation which is mortgage costs was pushed deliberately lower by the Bank of England. At this point the see-saw of renting looks very unbalanced to me.

This means that the average landlord in England and Wales has seen a return of £16,952 in absolute terms, before deductions such as maintenance and mortgage payments.

The UK has found itself in a situation where its private-rented property market is very unhealthy for its economy as frankly it has ended up with its own equivalent of the “Greenspan Put” where prices will not be allowed to fall and mortgage costs are driven lower. The King/Carney Put Option.

This is very different from saying all renters are evil as they arrive at it from many different directions and of course those trying to rent would be even worse off if landlords disappeared. It is just that as we move from the individual to the collective the situation becomes rather like the Borg and resistance feels futile.

A London problem

Rents here are forming their own private bubble it would appear.

Rents in London are rising most rapidly, up 11.6% on an annual basis to a new record of £1,301 per month.

I note that the KPMG Global Cities Report for 2016 (Eh?) shows that after expenses the typical UK graduate only has 19% of their income left as opposed to 42% in Dublin or 46% in Madrid. Perhaps anyone feeling low might want to follow the past example of David Bowie.

The consumer prices in Berlin are 30 per cent less, and the rental costs are almost 70 per cent lower than in the UK’s capital.

Oh and Hong Kong is apparently at -8% as we try to figure out exactly how that works!

I am reminded of the London Living Wage numbers from Wednesday where we were told this.

According to ASHE, most of this net gain was in jobs paid less than the living wage (826,000).

Of 872,000 new jobs some 826,000 paid less than the London Living Wage. How does that work with the rent figures? Are we stacking people into properties in conditions that we would not allow under animal welfare rules? I think City-AM has a full bucket of rose-tinting on this subject today.

In the future, those digital tools will reduce the demands on space and lower the imperative on up sizing for young renters, first-time buyers, new parents and young families.

Whilst I understand how I-Pods and MP3 players reduce space compared to record players and album collections I await to be told how they shrink a bed or a dinner table. Perhaps that guy should get a job at the New York “I cannot eat an I-Pad” Federal Reserve.

Why do the officlal numbers miss this?

If we look at the UK inflation data we see that there is quite a gap between surveys of rent changes and what they produce.

The OOH component annual rate is 1.8%, unchanged from last month.

It seems that their calculations are a bit like the Witches Brew in Shakespeare’s Macbeth so let us follow the advice of Madonna and go “Deeper and Deeper”. You see they do measure those who rent and they are 7.2% of the CPI. But the change in September 2015 was only 0.2%. Now we need to make an allowance for social housing rents where government policy is trying to push them down by 1% per annum but even so.

Also after observing the wage rises in the construction sector running at 6.3% it is interesting to note that dwelling repair costs are falling. Again there may be some lower materials costs but…

If we look across the pond to the United States we see quite a difference as shown by yesterday’s inflation release there.

The shelter index increased 0.3 percent in September after rising 0.2 percent the prior month. The rent index increased 0.4 percent and the index for owners’ equivalent rent increased 0.3 percent.

The Shelter Index is rising at 3.2% annually and is 33% of the CPI there so it is acting as much more of a counterbalance to disinflation elsewhere.Whereas we in the UK have a CPI which only has  a weight of 7.2% for housing costs meaning that in the  single month of September the impact of higher rents increased annual CPI by only 0.01%.Oh and that impact was ” particularly for self catering UK holidays”! Does anybody really think that the impact of housing costs on consumers expenditure is over four times higher in the United States? With house prices and rents so high in the UK some of you may be wondering if it should be the other way around.


It was around 3 years ago in the autumn of 2012 that I began my campaign against the plans of the UK establishment for measuring the impact of inflation in the housing sector. I could see that the claims of including it were really an effort to neuter it. So we have official disinflation and headlines of deflation by some whilst there must be many renters signing along to the lyrics below from Dido.

But if my life is for rent and I don’t learn to buy
Well I deserve nothing more than I get
Cos nothing I have is truly mine.

Seems rather a harsh view to me in “deserve nothing more than I get” But then even back in 1930 the man Stevie Wonder called Sir Duke was singing about the “Rent Party Blues”. I fear that may be on repeat in 2030 on current trends.


33 thoughts on “Generation Rent sees increases of 6.3% on average whilst being told its disinflation

  1. “of course those trying to rent would be even worse off if landlords disappeared”

    Would we? This is something that I hear quite often and I don’t follow the logic. If some sort of specialised neutron bomb got rid of the landlords their property would remain and would presumably be for sale rather than rent. But most people renting are not renting from choice (some are, I grant you) they’re renting because they can’t buy. So when I meet people who have 5 properties or the occasional one with 100 or 200, I can’t help but wonder what their [positive contribution to my housing problem could possibly be.

    It is very hard to get clear answers on this topic. When we are told that there is a housing shortage, how much of that is a shortage of property to buy and how much of it is a literal lack of places to put your head at night? None of the figures I’ve ever seen seem to even try to draw a distinction.

    There must be an issue with old stock needing replacement, and another with rising populations and the huge post-war increase in divorce which has rocketed the number of people living alone, but the analysis that breaks the situation down into this sort of detail never materialised under headlines of “Britain needs more houses”. How can any rational government wring its hands over this and at the same time encourage Buy to Let schemes that soak up the market and exacerbate the pain of people who have the vote? Because this is the one thing that could sweep Corbyn into office if the Tories don’t get a grip. I don’t give a monkey’s about Trident or Syria or obscure “charters” about budgets in “normal times” or any of that if I don’t have anywhere to live or no meny left over from paying for it.

    It must be some sort of Madness!

    Our house, was our castle and our keep
    Our house, in the middle of our street
    Our house, that was where we used to sleep
    Our house, in the middle of our street

    • It seems that, at every turn, TPTB’s insistence on supporting the housing market bubble, harms the population in general in more and more ways.
      BTLs are the real enemy of younger generations, not boomers.
      The landlords involved, if small fry, may have been forced by other government policies, in order to get the income they need that pensions no longer deliver, but let there be no ambiguity, large-scale BTLers are nothing more than parasites.

      • indeed from the HMG own figures I see that since 2000 we have gone from a local government rented house country to one with private landlords rented houses

        5 million or more transferred

        very few have increased the actual owner occupier section

        I posted about this a few weeks ago

        the actual housing stock has not kept pace with the population and I see no real effort on the behalf of Camel’s son to and the Tories to change that – lots of talk but talk is cheap


    • For the issue of supply you could read this:

      I think prices are more a function of credit than supply and, with regard to supply, housebuilders want restricted supply and high prices.

      Forty years ago when I first bought property it was 3X the main income and 1X any secondary income; now it’s 4X,5X joint incomes and so many women now work full, rather than part time.

      The only consolation is there has to be a limit to this; you cannot simply borrow ever higher sums without the income and you cannot pay ever higher rents without a supporting income. Have we reached “peak debt” or “peak rent”? I don’t know but we’re nearer it this year than last.

      • hmm, just a thought

        1, if you take into account students loans

        2, if all my income is on rent/mortgage , I steal for food ? and heating ?

        there’s subsidies as well – 20% as per HMG

        50% for housing associations

        even you can rent /buy and own as little as 20%

        but what ever we do – house prices must NOT FALL!!

        ( because the Banks will go bust… )


      • A very interesting and persuasive link Bob J, this accords with my own personal observations, I see many houses in my area empty and either for sale or rent whilst very very expensive houses that have been built in our local Green belt (yes the builders are getting their way and shrinking what’s left of the country side) are selling as fast as they can build them.

        It may well be that the “Housing Crisis” is that the houses are available but are not located where buyers/renters want to live so both groups continually bid up that housing supply which is in the “right location”.

      • Interesting link, however he misses an important point when he says that no one really needs to own a house. If tennacy was still a legal concept then I would agree, but it’s not. A landlord or indeed agent can turf you out on the street at the end of 12 months for any or no reason, or simply hike the rent by 15% as is happening to people in our area. Security is a human need and not something to be brushed off so lightly. Lack of it causes real stress and, in the form of unnecessary house moves, wasted economic effort.

        The introduction of this insecurity was of course the foundation of the BTL market as it made it easy to treat property as an investment which could be cashed in on relatively short notice.

        • Actually they can evict at 1 month’s notice if the contract is a 1 month rolling contract, which is legal although downright immoral.

          The trouble is landlords have fallen victim of unscrupulous tenants in the past who have wrecked the property and then done a moonlight flit owing a couple of months rent (“forgetting” to leave a forwarding address) and the deposit just doesn’t cover the repairs. The legislation was relaxed in favour of the landlord in consideration of this tenant behaviour, unscrupulous landlords take advantage of it just as unscrupulous tenants took advantage of the legislation in the 70’s and early 80’s.

      • Hi Bob J

        I wanted to reply on the rent issue and thanks for the link as other people have mentioned the Andrew Lilico paper and I had been looking for it.

        He uses the Office for National Statistics (although oddly he misses the statistics bit) data which I and others have been challenging at the Royal Statistical Society. I wrote a post on the subject in early September.

        Putting it another way he is the subject being challenged by Gareth Jones on the Royal Statistical Society website and apologies for it being technical.

        “I am gradually working through the details of this paper, but I would like to raise a major question on it from the outset.

        If the sample of rents between years has a discontinuity in average rent because of non-random sampling(within strata), I can see some logic in the approach being used.

        If however the discontinuity is caused by a change in the population of rents then it is a genuine change in rental costs and should not be removed by chain linking.

        It is not like buying tins of baked beans. If Sainsburys put their price up, I could to Tesco instead. The population of baked beans available for sale adjusts to movements in demand and prices will tend to equalise. This is not true of housing. You have to rent from the population of properties available in your area. Going to another area to get a cheaper property is a major quality reduction for which there is no adjustment. The same applies to house prices.

        Linked to this is the question of matching the sample over a 12 month period. Such a sample is not adapting to changes in the population during the year and so is quite likely to result in a discontinuity at the end of the year.”

        • Shaun – ” Going to another area to get a cheaper property is a major quality reduction for which there is no adjustment. The same applies to house prices.” – I don’t understand what is being said here, surely the adjustment for poorer quality (or perceived poorer quality) is the lower price/rent?

    • ‘When we are told that there is a housing shortage, how much of that is a shortage of property to buy and how much of it is a literal lack of places to put your head at night?’


    • Just to throw in a further comment on issues driving a decrease in housing stock available for purchase… you have areas in Manchester (specifically student-oriented areas) where due to cultural differences Asian families are more accepting/or it is more expected that they live together. As a result those that I know successfully pool their funds and invest in buy to let property in the local areas.

      This opportunity has always been around for the taking except I think it’s interesting to observe that cultural changes at a localized level in the overall populace of the UK can have a significant impact on housing stock – I say significant, I have nothing except experience to support that assertion.

      Just to add my grumble on this subject… right-to-buy is foolhardy unless you can replace the stock effectively.

  2. Great column, Shaun, as usual.
    On a completely different subject, you may be interested in the attached link. TVO is an Ontario government state enterprise, and The Agenda is its flagship public affairs program. The Liberal premier of Ontario, Kathleen Wynne, has been engaged in a jihad against the Conservatives since she became premier, in which, it appears, The Agenda is an enthusiastic participant. As you can see from the comments section, the producer of the segment on “Deficits, Past, Present and Future”, Ms. Gionas, refused to produce new charts on the program with an apology for the old ones used in that segment, insisting, against all logic, that they were accurate.
    The Canadian fiscal year runs from April 1 to March 31. DOF documents and charts always refer to these fiscal years as 2014-5, 2015-6, etc. The Conservative government, after two surpluses for 2006-7 and 2007-8, had a string of six deficits that ended in 2014-5, the last actual budget balance available. There is also a projected surplus for 2015-6 and an actual surplus for April to July 2015.
    TVO produced two charts, one showing budget balances from the 1960s forward, the other for the period the Conservatives have been in power. Both, by the labelling of their Y axes, seem to relate to calendar rather than fiscal years. The first one shows nothing but red ink following 2007, ignoring the surpluses since the end of 2013-4. the second one shows the Conservatives returning to surplus in calendar year 2015, not in 2014-5. The surplus for 2014-5 is shown as 2015, and the surplus for the first four months of 2015-6 isn’t shown at all. The second chart is almost as bad as the first one. No-one would ever refer to the 2014-5 fiscal year as 2015, ever. To say that the chart is accurate is just a joke in very poor taste.

    • Hi Andrew

      Similar debates surface here but usually all sides of the spectrum are accusing the other. In terms of twitter and other places there is the Y axis crime where it is shrunk or elongated to make a case! The BBC has more of an institutional bias than a political one.

      Is there no Office for Budget Responsibility or CBO in Canada? I am not a great fan of it here but it does at least offer some balance. Also I note that Governor Carney got himself involved in political issues and mistakes during his time heading the Bank of Canada. Whilst one should take care as central bankers were dragged into the limelight by the credit crunch would you say that the Canadian media and political situation is more polarised/biased than in the UK?

      • Thank you for your interest, Shaun. Yes, PM Harper promised to bring in a Parliamentary Budget Officer when he was running for office in 2006 and the PBO was established in 2008. It is modelled more on the Congressional Budget Office than the OBR, although it has less power than the CBO. The Parliamentary Budget Officer can be dismissed by the PM at any time. The PBO is part of the Library of Parliament and reports to the parliamentary librarian. I am reading the memoir of the first PBO, Kevin Page, right now, “Truth and Lies on Parliament Hill”, and Mr. Page makes a strong case for making the PBO an officer of Parliament.
        I agree with you that an office like the CBO or the OBR offers some balance, and didn’t like the Harper government’s efforts to cut the PBO’s budget and reduce its powers.
        I will always be very grateful to the PBO for its help in goading StatCan into publishing estimates of real gross domestic income (GDI), an initiative that was dear to my heart. I got to know two of its officers, Jeff Danforth and Chris Matier, a bit because of their work on that project.
        Getting back to budget balances, the Liberal and Finance Opposition critics asked the PBO to rework the Department of Finance April budget projections using Bank of Canada growth projections instead. With this and other adjustments, the PBO estimated the DOF’s CAN$1.4 billion surplus for 2015-6 would actually be a $1 billion deficit. (I might have mentioned that I did concur with The Agenda in not showing the projected DOF surplus for 2015-6 on its charts, as it was subject to controversy.) Now it seems that the PBO projection may be too pessimistic, as growth in 2015Q3 could be as high as 3.0% annualized, much higher than the 1.5% growth rate forecast by the Bank of Canada, so there may in fact be a surplus for 2015-6.
        It was the PBO report apparently, issued in mid-July that led Liberal leader Justin Trudeau to make a huge policy switch at the end of August from balancing the budget to running three straight deficits of up to 0.5% of GDP for 2016-7 through2018-9. (I wish I was joking.)
        Unfortunately, from what I know I do think the Canadian media, including the press, are more polarized and unfairly partisan than in the UK. It is certainly pretty bad here.

  3. Interesting note on housing costs in Private Eye this week: in five years the meaning of “affordable” in London has gone from £130/week (social rent) to £170/week (affordable rent) to £560,000 (starter home price before proposed 20% discount).

    • hmm, seems the London riche crowd will have to bus their servants in from Wales like the Reading fire brigade does with its firefighters as they cant afford to live in Reading on their wages ….


      • Hi Forbin

        I just wanted to add that it was more than a few years ago that I was told by a friend who is a policeman that one of his colleagues commutes from Ireland. In case you are wondering how that works as the police want a ready supply of coppers for pub tipping out time in London they are happy for someone to do 3 12 hour shifts which then gives that person 4 days off. In this case to fly home.

        If I recall correctly in the middle 2 nights the policeman concerned slept and showered at the station. So it is not such a new thing!

  4. Excellent post Shaun !

    If we were to graph UK renumeration vs competing countries using PPP (Purchasing Power Parity) we’d see UK renumeration falling rapidly.

    We might look for trends
    > Businesses relocating/offshoring due to excessive wage costs
    > People emigrating to more affordable locations

    Both of which could be dangerous to the state finances of a country that depends on 40% income tax and 20% consumption tax. Could Britain face a decline in services like it’s historical decline in manufacturing ?

    Excessive housing costs are a threat to business. If we accept the motto “you are what you do, not what you say you will do” then I’d accuse both this Tory administration and the previous Labour administration of anti-business, rentier friendly policy.

    • If you are right then Purchasing Power in the recepient countries of finance and skilled labour will begin to fall as prices rise due to finance and skilled labour influx whilst purchasing power of the donor countries will begin to rise as prices become static/fall and Purchasing Power in all countries equalises in accordance with PPP theory.

      • Hi Noo, it depends on the services. Financial centres – New York, Tokyo, Hong Kong and even Frankfurt are also expensive places to live. But IT outsourcing has massively increased over the past 20 years – just witness the growth of wipro, infosys, luxoft, epam. There is also a newish trend in the USA towards remote IT jobs – allowing the lucky employees freedom to work from whereever they have internet. Hence there is a demonstratable trend in IT jobs ….

        As to housing, I don’t agree with your assertion that it will equalise. Remote jobs break the link between employment demand and real estate demand. Housing in South East England is deliberately undersupplied to keep the rentier class in champagne … And even the Lib Dem’s 300,000 houses per year target fails to address the unfair planning restrictions which heavily favour the encumbent large house building firms.

        • Hi Expat, I was quoting PPP theory rather than agreeing with it as I’m still unsure about it. I think your argument holds re jobs that can be remotely placed and the employees are receptive to the idea, but many jobs in the UK cannot – bar tenders, hairdressers, builders, retailers in general excepting online purchases, manufacturers (yes I know manufacturing is a small part of UK GDP but it’s still there in a significant minority) etc.

          My own experience of remotely positioned jobs was very negative. A time came when I was in Public Sector where I was required to commute 180 miles return each day or live in digs. I suggested I work from home as I was a Project planner and risks manager and the job did not require my physical presence at the office all the time, I also suggested we all participated in online meetings as we already had the infrastructure to host such events. This, I put forward, should lead to me and most of us only having to come to a place of work maybe once a month if that, work output could easily be monitored via emails and documents created and issued for QR.

          My suggestions were greeted with outraged disbelief and I was treated as if I was Sauron of the Lord of the Rings!!

          My point is that in areas outside computer programmers and system testers which is the area I believe you work in (and whom form a very small number of the total work force) but which do lend themselves to remote working there is immense resistance to such concepts (in my case I think most of my colleaugues enjoyed driving around the country to various meetings as it got them out of what I consider “real work” and they/I could get overnight stays in hotels on expenses too so evading “work” the following day as we drove back to our normal work place), therefore, because of peoples behaviour, not because remote working can’t be done, the remote work argument fails.

  5. Hi Shaun, your entry today is indeed glaring and not really highlighted in the MSM other than in soundbites. Smallest room in london under stairs, Average housing prices at highest ever, Graduates cant afford rent. At least you try and explain it. The trend would appear unstoppable and acelerating so logically we’ll get a trainwreck within a couple of years. Who will we help first after smash-up? Keep it up Shaun

    • Hi Paul C and thank you

      Actually there have been quite a few in the MSM and economics community taking exactly the opposite view which is that there is no problem. I have already replied to Bob J above on the technicalities and where I have covered this in previous posts so let me give an example of the other side of the argument from Tim Worstall at the Adam Smith Institute.

      “We think we’re all onboard with the idea that something dreadful is happening to rents in London? They’re vast, much too high, soaring ever higher and becoming increasingly unaffordable?

      Therefore something needs to be done. Possibly rent controls, maybe throw up a couple of hundred thousand prefabs, possibly crucify buy to let landlords or something?

      The problem is that the basic original fact is wrong.”

      He then quotes a paper up to 2013 which you do not have to look very far through to see this.

      “Average rents for new tenancies in London were 11.9% higher in September-December 2014 than they were in the same period in 2013,”

      If we skip the rent controls bit then that is a bit awkward for his basic premise don’t you think?

      Oh and I have challenged the methodology of the ONS data quite a few times on here of which an example is below.

  6. It’s the subsisdies for landlords that really grate with me.

    Politically,Osbourne seems to have grasped the importance for the Tories of the rising age of the first time buyer.It’s funny how many politicians love the free market until it comes to housing and the banking bail outs.

    ZIRP,FLS,HTB1+2 etc all aimed at sustaining the credit bubble in the hosuing market.

    They should have let the banks go in 2008.

    • Hi Dutch

      I agree on the banks issue as it would have been better for us to have taken the full hit then rather than some of it and hoping the rest would go away. As to the housing issue I think it was implicit originally ie. the Bank Rate cuts and QE were for the whole economy but FLS and indeed the lack of any Bank Rate rises from an “emergency level” are for the housing market.

      The moves have to be ever more extreme because the starting point gets worse and worse.

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