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Independent: What’S Really Happening To Rents?

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HomeLet’s most recent report, released this week, suggests rents nationwide were 6.4% higher year-on-year in June. In London they were up a swingeing 11.2%. That contrasts with the most recent ONS report which says average rents in England were up just 1% in March and a modest 1.4% in London in that same month.

Viewed through this analytical lens, there is not such a great divergence, over the past year, between the movement of average rents and prices, suggesting that a shortage of housing supply, not speculation, is driving the property market:

http://blogs.independent.co.uk/2014/07/29/whats-really-happening-to-rents/

Edited by subspace

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Viewed through this analytical lens, there is not such a great divergence, over the past year, between the movement of average rents and prices, suggesting that a shortage of housing supply, not speculation, is driving the property market:

Conclusion based on an insignificant sample that contradicts completely a conclusion you would reach over a significant period of time.

Silly nonsense.

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There could be other reasons why those two indices are so different, not only the fact that Homelet measures new rents but ONS all rents.

MoveWithUs index looks like similar to the ONS index . This index is being based on asking prices from home.co.uk so it also measures new rental prices. What is specific about it is that it uses ONS weights to adjust for a property type and region. ONS weights are based on value of all rents. It is possible then that new rents are rising faster for properties and region where ONS weights are low (low overall rental income) but there is a lot of activity.

Other feature of the MoveWithUS index is that it removes extreme values, which could also dump growth rate if expensive properties rise faster.

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Conclusion based on an insignificant sample that contradicts completely a conclusion you would reach over a significant period of time.

Silly nonsense.

I agree - why are we searching around for bullsh!t VI statistics that tell us something that is almost certainly not going to be true (rents race ahead of earnings) when we have a colossal statistically robust data set telling us something that is surely going to be true (rents track earnings). I'm out.

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Worlds first, you seen it in the UK!

Rents race ahead of incomes.

Never in history of any country EVER has this happened before, but there you have it's happening in the UK. :P

Must be the `Recovehry' or a VI with some BTL's to offload.

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I agree - why are we searching around for bullsh!t VI statistics that tell us something that is almost certainly not going to be true (rents race ahead of earnings) when we have a colossal statistically robust data set telling us something that is surely going to be true (rents track earnings). I'm out.

There is no reason why rents should track earnings. That maybe true in the long run but on the short timescale they can diverge for sure. Mortgage payments don't follow earnings.

That is what ONS says about its index

"IPHRP is released as an experimental statistic. This is a new official statistic undergoing

evaluation and therefore it is recommended that caution is exercised when drawing conclusions from
the published data as the index is likely to be further developed. Once the methodology is tested and
assessed, and the publication meets user needs, the IPHRP it will be assessed against the Code of
Practice to achieve National Statistic status."

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Absolute rubbish.

Been in the same flat in N2 for 4 years and not one rent increase.

Similar flats on the market at the same price or slightly lower than what I pay.

This report does not reflect reality.

I don't know one person in London who's rent has gone up even marginally in the last 5 years.

What's their agenda?

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There is no reason why rents should track earnings.

A landlord will charge what tenants will pay. What tenants CAN pay is most surely related to earnings. Is this not obvious?

Mortgage payments don't follow earnings.

Which is where the danger lies when taking on a 25 year mortgage commitment. In recent times this is a danger compounded by the effect of letting the borrower borrow whatever they damn well please, whether they can repay it or not !

Are you being daft on purpose?

Edited by cybernoid

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If it is true, it's a phenomenon of the last 2 years only, the fact that prices far outstripped rents has been one of the key bear arguments about property. Bit different this time, asking prices must have gone up by 25-30% in the last year where I live, but also rents, perhaps 15% up on low supply. But they stayed broadly flat between 2003 and a couple of years back.

I tend to think that the last couple of years is a reflection of new entrant BTLers who have to price high to try and boost their pitiful yields. I'm renting in a particular SE house price hotspot in the Essex/E London borders and no one i know who's been renting the same place for a while is getting a rent increase. I'm paying the same rent for the last 3 years.

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A landlord will charge what tenants will pay. What tenants CAN pay is most surely related to earnings. Is this not obvious?

Which is where the danger lies when taking on a 25 year mortgage commitment. In recent times this is a danger compounded by the effect of letting the borrower borrow whatever they damn well please, whether they can repay it or not !

Are you being daft on purpose?

How much tenant can pay is not fixed. Tenant can reduce other expenditures or savings to pay higher rent. Of course there are some limits to this.

There is no magic ratio rent/earning. If you look for an example at London rents, they are twice higher than the rest of England but earnings only around 25%.

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I thought I'd read that most tenancies last for less than a year.

With this kind of churn the ONS figures would surely have caught up with the Homelet figures.

Also, if the ONS figures include both new and existing figures and new tenancies are going up 6.4% a year then that would probably mean that existing rentals would be falling.

I call BS.

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My rent has remained the same for 8 years now.

There may well be a phenomenon whereby many Landlords to keep tenants they want and to avoid voids, keep the rents the same. Of course when it goes back on the market again the property has a lot of catching up to do.

So if for some reason you had to leave your current property and re-enter the market you would have to pay current market rates which would be much higher than what you are currently paying. Surely that is the figure that matters i.e. what it would cost a new entrant to the market.

I think that if you are going to calculate house prices by extrapolating current sold prices to the existing housing stock then surely you should do the same thing with rents i.e. extrapolate current rents to existing tenancies.

Edited by subspace

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Worlds first, you seen it in the UK!

Rents race ahead of incomes.

Never in history of any country EVER has this happened before, but there you have it's happening in the UK. :P

Must be the `Recovehry' or a VI with some BTL's to offload.

Has there ever been a situation in a free market where there has been a shortage of a basic necessity with a constrained supply that has not let to a price rise?

Edited by subspace

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Has there ever been a situation in a free market where there has been a shortage of an unsubstitutable basic necessity with a constrained supply that has not let to a price rise?

There is no shortage of shelter.

You're confounding two totally separate issues, the demand for a private home on a rental basis, and the need for shelter. If I lost my job tomorrow and couldn't get another one, I could put all my stuff in a cheap lock up and kip with family or friends till things turned around. My demand for a private home on a rental basis would disappear with my earnings because demand without the ability to pay is no demand at all. The existing infrastructure would meet my need for shelter in a new cheaper way that would make me less popular with my friends and family.

The extent of the existing demand is already in the prices. We don't have a baby boom of highly paid graduates hitting working age, we have fairly static levels of increasingly indebted graduates taking jobs in coffee shops which pay wages that are weakening in real terms and a fairly static number of old people dying and thus reducing their demand for a private home on any kind of basis in a pretty final way.

Hence there are only minor changes to the demand for private homes. The trends are stable because the variations in the influencing factors are only minor.

Rising rents is a just a BTL sales pitch.

I'm not buying it. Why are you selling?

Edited by bland unsight

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Has there ever been a situation in a free market where there has been a shortage of a basic necessity with a constrained supply that has not let to a price rise?

That is one reason for marginal price rises, sure. Does not mean it is the only reason or indeed the main reason.

In a shortage scenario for basic necessities, people will make alternative arrangements (e.g. more people to a house, basically, thus reducing demand). Demand is quite elastic in the rental space. Only those who can afford to will pay ludicrous rents, either because they are not bothered, have financial assistance or are so downtrodden they are willing to part with the majority of their take home pay for shelter will participate.

Anecdotally, a long time ago an amateur landlord told me she'd sent a letter to her tenants to demand an increase in rent because her mortgage interest rate had increased! Apparently renters in the UK just suck it up.

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...

Anecdotally, a long time ago an amateur landlord told me she'd sent a letter to her tenants to demand an increase in rent because her mortgage interest rate had increased! Apparently renters in the UK just suck it up.

<faux_outrage>

Really JustYield - "[a]necdotally, a long time ago", and yet enough to support a rather dismissive assessment of UK renters. Anyone would think that you were trying to bait other posters! :P

</faux_outrage>

I solemnly promise that I'll counter offer nothing and move if push comes to shove. The growing local glut of rental property should concentrate minds. 8 come on every week, and three go off. How long can that go on for?

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<faux_outrage>

Really JustYield - "[a]necdotally, a long time ago", and yet enough to support a rather dismissive assessment of UK renters. Anyone would think that you were trying to bait other posters! :P

</faux_outrage>

I solemnly promise that I'll counter offer nothing and move if push comes to shove. The growing local glut of rental property should concentrate minds. 8 come on every week, and three go off. How long can that go on for?

I don't know if she successfully passed on her increased variable costs to the renters! Just sayin' - she thought this was a perfectly valid course of action. It does amaze me how many people seem to want everything their way. It doesn't occur to everyone that they can say "No" (or the Anglo Saxon equivalent there-off).

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Anecdotal, it's almost exactly 7 years since I rented one of these for £575/month:

http://www.rightmove.co.uk/property-to-rent/property-45072280.html

http://www.rightmove.co.uk/property-to-rent/property-31814670.html

Both asking £600/month, you should be able to get one of them for the same or less than I was paying in Sept 2007.

The selling prices of these has lost about 30% (from newbuild) in the meantime.

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