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If House Prices Fall, Will Rents Remain Level?

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As per title, if house prices fall is it likely that rents will also fall (as more people opt to buy instead)?

As I understand, house prices may fall on the back of reduced credit availability - so people who want to buy at lower prices still have difficulty borrowing. Is this logical?

So it seems rents will likely remain the same?

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If it is due to a restriction on mortgage credit, then no.

Less so, sure, but still a bit. I'd probably buy a place (for cash, not with a mortgage) if it was sanely priced.

One argument I've seen is that as prices fall from completely unaffordable to borderline-affordable it's disproportionally going to be the better-off renters who take the plunge. Meaning the average income of the remaining renters falls, and possibly the rents they can support.

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Since the late 90s, which is roughly the lifetime of the current bubble, rents have moved broadly in line with inflation while house prices have gone mental. One of the symptoms used to identify a bubble is the ratio of house prices to rents, which at least in London and SE is at an all-time record. I therefore see no reason for rents to fall proportionately when the bubble deflates.

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If falling prices cause people to buy, then rental demand will fall. However, they will presumably be buying from landlords who are bailing out, so supply would also fall. Meaning rents would remain stable.

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If house prices fall then the UK will be in recession. Fewer full-time jobs equals lower wages (on average). Lower wages equals lower rents, unless your govt is borrowing hundreds of billions to subsidise the cost of ownership (see Osborne's efforts below).

earnings-against-rent-uk.jpg

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Since the late 90s, which is roughly the lifetime of the current bubble, rents have moved broadly in line with inflation while house prices have gone mental. One of the symptoms used to identify a bubble is the ratio of house prices to rents, which at least in London and SE is at an all-time record. I therefore see no reason for rents to fall proportionately when the bubble deflates.

People with BTL may drop rent to keep tenants when they realise that the HPI element is gone? In the past it was a given that the property was increasing in value anyway, so they cranked the rent up to the max HB level for the area, kept it there, and just took any voids on the chin, that will change in a falling market perhaps? Of course the tax changes coming up for BTL may just make people run for the exits and to hell with trying to keep tenants, meaning massive price crash in flats and HMO style houses.

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No significant rent drops in NI after we crashed. Landlords who had previously invested in property on the expectation of a capital lottery win suddenly realised that wasn't about to happen, all they had left was the monthly rent.

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If house prices are falling, people might be in less of a rush to buy. They will have to live somewhere so they rent and watch the market slide. There is no real reason to expect rents to fall in a significant way if house prices are falling.

Unless of course, we get a real increase in supply, the sort that is currently underway in the SW9 area of London. Anyone trying to rent out a grotty ex-LHA flat in a dismal corner of town may have to undercut a huge number of nice, shiny apartments about to hit the market late next year.

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No significant rent drops in NI after we crashed. Landlords who had previously invested in property on the expectation of a capital lottery win suddenly realised that wasn't about to happen, all they had left was the monthly rent.

Interesting. A real life case study.

Northern Ireland had an almost 50% price crash after 2007, didn't it? I know the Housing Executive has annual reports on the private rental market going back to 2007 http://www.nihe.gov.uk/index/corporate/housing_research/completed/private_rented_sector_and_rents.htm - might be worth a look when someone has time.

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Since the late 90s, which is roughly the lifetime of the current bubble, rents have moved broadly in line with inflation while house prices have gone mental. One of the symptoms used to identify a bubble is the ratio of house prices to rents, which at least in London and SE is at an all-time record. I therefore see no reason for rents to fall proportionately when the bubble deflates.

Surely rents have risen more than inflation in London (although less so than houses).

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Interesting. A real life case study.

Northern Ireland had an almost 50% price crash after 2007, didn't it? I know the Housing Executive has annual reports on the private rental market going back to 2007 http://www.nihe.gov.uk/index/corporate/housing_research/completed/private_rented_sector_and_rents.htm - might be worth a look when someone has time.

Having had a quick look through that it seems that overall NI rents became very static in nominal terms for several years (see figure 2) and that Belfast saw nominal rent falls (the largest that I picked up on being -10.1% in South Belfast over 2010).

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