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 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.