There is nothing going on but the rent

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by Shaun Richards

That quote from a hit by Gwen Guthrie is rather echoing this morning as we look at another aspect of the housing crisis. Oh and I am pointing out the song link partly because there was quite a miss last night on a reference to the film Escape from New York on Twitter. If course that was a theme of sorts, for housing markets for a while as well.

The UK

The situation here has a holiday flavour to part of it. From the ipaper and Vicky Spratt this morning.

The summer staycation boom is seeing renters priced out of their communities and in some cases forced out of their homes as landlords in tourist hotspots pivot towards holiday lets.

The trail here switches to Abba for a bit with “Money,Money,Money”

The surge in bookings has seen the rate of holiday let companies – in which landlords and second-home owners can offset costs and claim mortgage interest relief – more than double during the pandemic, with many homes previously available for private rent converted into more lucrative holiday homes.

For those unaware that reminded me of a past situation where owners had a type of relief but that was scrapped by Nigel Lawson just before the 1990/92 house price fall. The last sustained one we have had so younger readers and millennials will never have experienced a national one. But returning to the Buy to Let situation a tax change has oiled the move above.

from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction ( UK Government )

So the law of unintended consequences comes into play as a rule change to restrict buy to let turns out to lead in this instance to a technical switch. This has been aided by a response to the Covid pandemic.

Travel restrictions triggered by the pandemic have seen record visitor numbers in some regions,especially Scotland and coastal areas of Wales, Devon and Cornwall.

I have been asked before about buy to lets being incorporated and it seems we are seeing some of this here. There can also be gains around pension contributions and inheritance tax, The impact on the rental market has been large.

Meanwhile, the number of private rental listings has fallen by 53 per cent in Wales, 49 per cent in South West England and 28 per cent in Scotland.

Particularly hard-hit was Gwynedd in Wales – which includes towns such as Porthmadog and Portmeirion – where there were 4,007 short-term holiday lets according to AirDNA but just 14 homes for private rent on Rightmove and 85 on Zoopla respectively.

Now we move to a consequence of this and it is inflation.

Gemma Marshall, 38, is a private renter from Kingsbridge in South Hams which borders North Devon.

Here, Generation Rent found 2,521 holiday lets but only 31 Rightmove and 16 Zoopla private rental listings.

Gemma was recently served with an eviction notice by her landlord from her £900-a-month, three-bedroom house and is now finding similar properties advertised between £1,200 and £1,500 a month.

At this point we are in the zone of an example or anecdote so let us look wider.

New figures shared with i show average rental prices in tourist hotspots have risen by around a quarter in the past two years.

Rightmove

Last week This Is Money told us this.

The cost of renting has jumped to a record high of £1,007 a month — up 6.2pc on the previous year, according to property site Rightmove. And some landlords are now demanding deposits of up to six months’ worth of rent.

So rents are on a bit of a charge driven by this.

As the country gets back on its feet and workers return to the office, letting agents have been bombarded with inquiries from renters. But many landlords have sold up and a lack of supply of properties means soaring numbers of people are being priced out.

We seem to be facing a lack of supply across quite a few areas these days. It is a bit of a 2021 theme as we add another feature to the list. Also I regularly point on concerning house prices that Rightmove have the problem of using asking prices but this time around it may be an under statement.

While some tenants are being ‘gazumped’ by others offering to pay up to 25pc more than the advertised rent. And it’s not only younger renters affected. In England, one in five families — more than 4.4 million — live in privately rented accommodation.

I also note that higher deposits are being demanded which is another cost and will price some out as the reason they are renting may be that they cannot afford or pay lump sums. We also have an example from somewhere that is not a holiday destination.

Surveyor Alex McNeil, of Bramleys in Huddersfield — who has worked in property for nearly three decades — says: ‘Normally we would have between 25 or 30 properties but now we are down to around two or three and last week we just had one. Rental values have significantly increased as a result and a three-bed semi that might have been rented out for £650 a month 18 months ago could go for up to £800 now.’

What about London?

According to This Is Money the times may be a-changing there too.

She claimed a two-bed flat in Balham, south London, went for 16pc more than its previous letting price when five bidders made offers within 48 hours.

‘This is common, especially for properties with outside space, and rents can be up to 25pc higher than the previous tenancy,’ she adds. And last month, the firm recorded a 13 pc rise in rental inquiries for its London properties compared to July last year.

That is different to the initial impact of the pandemic where rents fell in London. On a personal level I know people who took lower rents if they had reliable renters at a time of uncertainty. But the other day I was told about a 16% increase although this was after a property had been rented for several years.

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Comment

It is clear that at least in some places there is an issue and it seems to be spreading. But one place that has clearly not picked up anything much is the official measure.

Private rental prices paid by tenants in the UK rose by 1.2% in the 12 months to July 2021, unchanged since April 2021.

So nationally very little is happening which is reinforced as we look wider.

Private rental prices grew by 1.2% in England, 1.1% in Wales and 1.3% in Scotland in the 12 months to July 2021……The East Midlands and South West saw the highest annual growth in private rental prices (both 2.5%), while London saw the lowest (negative 0.1%).

Even if we take London out of the equation we are picking up nothing much.

In the 12 months to July 2021, rental prices for the UK excluding London increased by 1.9%, up from an increase of 1.8% in June 2021.

The explanation is that we are seeing a real world example of the problems with using rents as an inflation measure that I regularly point out. The official numbers are in fact smoothed over a period of approximately 16 months. So it is misleading to present them as numbers for July 2021 when on average they are in theory influenced still by 2020. I say in theory because it is worse than that as it takes time for rents to change which is what they are confessing too here.

These supply and demand pressures can take time to feed through to the Index of Private Housing Rental Prices (IPHRP), which reflects price changes for all private rental properties rather than only newly advertised rental properties.

So we may even be reflecting 2019 a bit.

I hardly know where to start with Northern Ireland where it might even be better to suspend the numbers.

The annual rate of change for Northern Ireland in July 2021 (3.4%) was higher than the other countries of the UK. Northern Ireland data have been copied forward since March 2021; the next update to Northern Ireland data will be in the release published on 15 September 2021.

We do get a reading between the lines confession that things are in fact likely to be rather different to the release.

The Association of Residential Letting Agents (ARLA) reported in their Private Rented Sector Report, June 2021 that members reported a decrease in rental stock, while the average number of new prospective tenants registered per branch was at the highest level on record for the month of June.

So we are in fact incapable of officially measuring 2021 rents until 2022/3 and maybe 2024. The numbers are not fit for purpose and we are shown how rents can be unaffordable whilst the official measure records nothing much.

Then we use such numbers as a proxy for owner-occupiers costs and wonder how the 13.2% of house price rises becomes the 1.2% of rents.

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