There is a problem with rental inflation which the official figures ignore

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by Shaun Richards

Today has brought an opportunity to look at another facet of the cost of living crisis. I often look at house price inflation but this time around it is those who rent that take centre stage. As we look we will see many familiar themes and some matters I pointed out at the Better Statistics seminar on Wednesday at the Royal Statistical Society.

Tenants are staying put for longer rather than being potentially hit with record rents by moving elsewhere, research from a property website suggests.

The average monthly rent being advertised across Britain (excluding London) was a record £1,088 in the first quarter of 2022, marking an 11% annual increase, Rightmove said. ( Press Association)

It is good to get some numbers from outside the capital as it ends to dominate the news but in case you think it is worse in the rest of the country there is also this.

In London, average asking rents have shot up by 14% annually to £2,195 per calendar month.

There are also more than triple the number of tenants inquiring as there are rental properties available, making the market highly competitive, according to the website.

Prices are being driven higher by shortages.

The lack of stock stems from longer tenancies, coupled with demand from people who had previously put plans temporarily on hold due to the coronavirus pandemic, it suggested.

The professionals are expecting more to come.

The Royal Institution of Chartered Surveyors (Rics) said this week that 63% of property professionals expect rents to rise in the next three months, the highest proportion since its records started in 1999.

Rics said the number of available properties to rent is also edging down, as demand from renters increases.

With so many prices soaring it is easy to see why some are opting for as much certainty as they can get.

Analysis of features offered for more than 20,000 build-to-rent listings on Rightmove showed a significant increase in demand for properties with all bills included.

Over the past year inquiries from tenants have jumped by 36% for this type of property, the biggest increase out of all available features.

As you can see quite a situation has been created.

“People who had been waiting to see what happened last year are now being faced with record rents and so are seeking out properties where they can have more certainty over their outgoings, with all bills included becoming increasingly sought after.

“Landlords may have been tempted to put their rents up given the high demand from new tenants, but many understand the affordability challenges of rising rents and bills, as our study shows that the majority are charging their tenants the same as a year ago.

Sadly some have had their fingers burned as the market has swung around.

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Other Measures

On Wednesday I pointed out that other rental measures were showing high inflation. First there is Zoopla.

The rate at which rents are rising reached a 13-year high of 8.3% in the final three months of 2021.

The average annual rent for those agreeing a new let is now £744 higher than pre-pandemic levels.

The numbers are out of date but they come with a strong hint that the situation will be worse now.

The New Year has seen soaring demand for rental homes, with the number of people looking for a property 76% higher than during the same period between 2018 and 2021.

Goodlord is much more timely.

During April, the average cost of rent for a property in England rose from £1,006 to £1,012 – a modest 0.5% increase.

All regions monitored saw an increase in prices of up to 1%, apart from in the Northern regions.

The North East saw a larger increase in the cost of rent – with prices up by 2.34%. The North West, however, was the only region to see a drop in the average; recording a 1.6% decrease.

If you look at their raw data you see that there has been a 10% rise over the past year.

The Official Data

The private rental series tells us this.

Private rental prices paid by tenants in the UK rose by 2.4% in the 12 months to March 2022, up from 2.3% in the 12 months to February 2022.

Hang on are we sure? Apparently we are.

Private rental prices grew by 2.2% in England, 1.6% in Wales and 2.8% in Scotland in the 12 months to March 2022.The East Midlands saw the highest annual growth in private rental prices (3.8%), while London saw the lowest (0.4%)

They pick up a completely different situation.

Private rental prices paid by tenants in the UK increased by 2.4% in the 12 months to March 2022, representing the largest annual growth rate since July 2016.

They have managed to completely miss the recent surge in rents in London.

In the 12 months to March 2022, rental prices for the UK, excluding London, increased by 3.3%, up from an increase of 3.2% in February 2022. London private rental prices increased by 0.4% in the 12 months to March 2022, up from an increase of 0.2% in February 2022.

We can go further as we see that they have completely misrepresented and misunderstood what is happening in London.

London’s rental price growth in March 2022 (0.4%) remains the lowest of any of the English regions. This reflects a decrease in demand, with remote working shifting housing preferences as workers no longer need to be close to offices. It also reflects an increase in supply, such as an excess supply of rental properties as short-term lets change to long-term lets.

Even out official statisticians have spotted there is a problem here.

During 2021, all three private sector measures have shown considerable increases in private rental price growth, with this trend continuing into the start of 2022. These changes do not appear to have fed through into the IPHRP to the same extent.

Comment

We find ourselves in a familiar situation where people find that they cannot afford things but are officially told that there is little or no inflation. In this instance they try to deflect with this.

This is because the private sector measures primarily focus on newly let properties (a flow measure), while the IPHRP includes a mixture of newly let properties and existing lets (a stock measure).

But there is a much deeper problem that they do not explain. The official numbers are not for the month that they claim to be as they are “smoothed”. The period is over 16 months which means some of the numbers in it if we allow for reporting lags and the like are 18 months out of date in the worst case. That is why they are not picking up the changes we are seeing elsewhere because the influence of right now is small and the influence of the past is higher. Can you spot the flaw in doing that when things are changing quickly as we have seen post pandemic?

There is another issue here which is why are they doing it? The answer is that they do not trust their own monthly numbers as otherwise they are the ones which would be published. Also it means that the numbers are not an inflation index and the population is being misled or as Madness put it.

No commitment, you’re an embarrassment
Yes, an embarrassment, a living endorsement
The intention that you have booked
Was an intention that was overlooked

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