We find ourselves in a situation that has not been seen for several decades. There is a link to yesterday’s topic which is the catastrophic mess out political class have made of out energy supply which contributes to the present inflationary tale of woe. Also sadly the situation is badly reported by the media and here is an example from the national broadcaster the BBC.
The latest inflation figures show the cost of living went up 10.1% in the 12 months to September, driven mostly by rising food prices.
No they do not because whilst they avoid stating the measure it is CPI which ignores a large part of housing costs and thus cannot be a cost of living measure. The reason it ignores owner-occupied housing costs is that they intended to put them in but it has slipped their mind for 20 years or so in the UK and more in Europe.
We only need look back to the period briefly after the pandemic for the reason why. They were able to tell us that there was very little recorded inflation when house prices were surging. For example the official UK house price index first hit double-digits (10%) in March of 2021 when we were being told this.
The Consumer Prices Index (CPI) rose by 0.7% in the 12 months to March 2021, up from 0.4% to February 2021;
As you can see house prices were a leading indicator of what was to come.So not only would including them give a more realistic inflation reading it would also have given us a warning. Instead we got a Bank of England and establishment happy to assure us that any inflation would be “Transitory” in yet another major policy error.
Whilst we are looking at the cost of living let us note another issue which is on the march.
Rents are soaring
Let me hand you over to Zoopla.
Rental growth has accelerated over the last 12 months from an annual rate of less than 2% in July 2021 to 12.3% today. Average rent increased by £115 per month since last year, to stand at £1,051 per calendar month. Rental growth is out-pacing earnings growth in all regions and countries of the UK.
The last sentence is a little superfluous as 12.3% outpaces nearly everything! It is also widespread.
Rents are rising quickly across all parts of the UK, ranging from 7.6% in the North East to almost 18% in London.
London is intriguing partly because I recall the media assuring us that people were flooding out of it to the countryside.
In London, the rental growth pace is simply not sustainable. Current growth figures reflect the rents rebounding off a low base, after 10% fall during lockdowns. Average rents in London are currently 7.8% higher than before the pandemic, compared to the UK-wide average
of nearly 13%.
The London move is something that has been noticed by others. From last week.
Any idea why London rents are going so crazy? My back of envelope numbers suggest at the conventional elasticity, something like 9% of the rental housing stock would have had to come off the market (or demand has gone up very sharply but I don’t see why that would have happened) ( @dsquaredigest )
Although it is against many other trends there is this.
London economy unexpectedly booming? Just a feel rather than any data but trains into town and tubes are back to rammed and the place feels humming. ( @PolemicTMM)
From my personal experience and I realise this is only anecdote it does feel like that. Battersea has a bias at the moment due to the tr-opening of the Power Station which by its nature is on a grand scale and will see big moves. Even the CEO of Apple appears impressed.
We can’t wait to open our new offices in the iconic Battersea Power Station for so many of our team members in London early next year. It’s a tribute to this incredible city and a reflection of our commitment to Apple’s future in the UK.
Some argue it is a supply issue as Zoopla try.
The stock of homes for rent remains almost half the average compared to the last 5 years. The average letting agent has just 8 homes available to rent – half that of the summers 2017-2019. The flow of new homes to rent is running 7%
below the long-term average, as renters stay put to avoid rent increases.
I am unconvinced that this is the main player here and anyway they rather contradict themselves rather quickly.
Another important trend is rental growth in urban areas across England (10.5%) – which is outpacing that of rural markets (8.5%) as strong employment growth drives demand in cities. Higher levels of new-build supply concentrated around city centres is also becoming more appealing to renters looking for smaller homes with
lower running costs.
Let us move on after noting that rents are on a tear driven by urban areas particularly London and whilst there may be supply issues it looks to be mostly a demand thing.
The official rental numbers
It may be hard to believe that someone has managed to get the above to this but here is the Office for National Statistics.
Private rental prices paid by tenants in the UK rose by 3.6% in the 12 months to September 2022, up from 3.4% in the 12 months to August 2022.
You might think that in modern language that this is a drop the mic moment but it gets better or rather worse.
In the 12 months to September 2022, rental prices for the UK excluding London increased by 4.0%, up from an increase of 3.9% in August 2022.
What do they think that London is doing?
The East Midlands saw the highest annual growth in private rental prices (4.7%), while London saw the lowest (2.8%).
So everyine else and especially those trying to rent in London think that prices are soaring but the ONS think that the reported auctions and closed bids have in fact led to the slowest rate of rental inflation in the UK. I am sorry but that is Madness.
You’re an embarrassment
If you want the technical details of how this has happened they record rents as a type of stock rather than a flow. Apart from abandoning the conventional methodology that inflation is a flow it has the issue that we are being told what it was around this time last year. Probably ( there are other issues I do not want to go into today).
So as a number for September 2022 it is actively misleading.
Comment
If we stay with housing inflation we see why the measure below is both misleading and bad for the reputation of both the ONS and the UK Statistics Authority as they continue to recommend it.
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 8.8% in the 12 months to September 2022, up from 8.6% in August and returning to July’s recent high.
It is a basic fail as adding soaring housing costs has reduced the rate of inflation by their misguided methods. It is in fact worse than oy looks because they also use the rents they have just got so badly wrong as their guide to owner-occupiers. Apart from the fact that by definition owner-occupiers do not pay rent the numbers are wrong anyway.
You might think with mortgage costs in the news everywhere it might occur to someone in the media to think that they should be in a cost of living measure? It seems so obvious but apparently not. If they did they would note that the mortgage costs element of the RPI rose by 4.5% in September and that is monthly. So an actual number paid rises by 4.5% in a month but instead our statisticians pick a number which is never paid by owner occupiers but is rising at 0.3% a month.
Next up is house prices which we are told are doing this.
UK average house prices increased by 13.6% over the year to August 2022, down from 16.0% in July 2022.
So the things owner-occupiers do pay are rising at 4.5% monthly and 13.6% annually but are apparently not good enough for the inflation figures but last years rents at 3.6% annual are.
As we note the fact that the Stamp Duty Cut survived the new wave of austerity the official game is clearly do this to house prices whilst keeping them out of the inflation figures.
Pump it up, when you don’t really need itPump it up, until you can feel it ( Elvis Costello)
Along the way we see that the measurement of rents is actively misleading.