Are Rents Going To Increase

[Wlad]

I personally cannot see how anyone would think a landlord not justified in raising rent to offset these extra costs,

It's not about whether or not the landlord would be justified, but about whether the landlord would have the capacity, given rental market conditions, the ability to make this increase.

If distressed owners are forced to sell their houses and these are bought by cash buyers to rent out then although the number of renters will have increased then the number of properties available to rent would increase in step. Only if cash buyers buy properties and then decide to leave them empty or if people, en masse, move into shared accomodation or back in with parents will the supply and demand not be roughly the same as it is now. And buying a property for cash to leave it empty as house prices fall would be a strange investment choice. This suggests that any changes in rental costs will be clustered around changes in either inflation or wage increases. The tendency for rents to try and follow the higher of these two, unless demand falls off if the increase is too high.

[Wlad]

As discussed by various posters, logic would suggest that in a recession rents would fall. However, in the last house price crash and resultant recession rents certainly didn't go down. A house that I was renting for £420pm in 1993 was recently advertised at £620pm - an increase of only 50% in 15 years while house prices have increased by over 300%.

That rent increase is fairly close to RPI over the same period.

[Wayo]

I agree with the accountant, i've already seen room rents rising...

According to the dreaded CPI stats, rents rose 3.3% in the year to October07, continuing their upward, yet not outrageous trend.

It is worth noting that in the CPI, actual rents paid for housing is worth 49/1000 or 4.9% of the whole index, compared with 5.4% for clothing and 9% for food.

IF rents do take off, interest rates will not be far behind. In fact for the last ten years, except for much slower growth in 2003 & 2004, housing rents have risen by close to 3% on the CPI measurement.

With abundant new build still going up in most cities, and much property 'held' for speculation, I would think rents are looking on the downside. Although they look cheap relative to todays colossal mortgages, rents are expensive relative to earnings. £500/month + taxes and bills coming to say £700/month will get you very little in many parts of the country, which is over 50% of median take home pay.

Unless you bought 'pre miracle' any form of housing except subidised, shared or squatted looks very pricey to me.

http://www.statistics.gov.uk/StatBase/Product.asp?vlnk=867

[Chrysalis]

Google housing allowance, its all over the net at present.

Unfortunately the allowance is set on the median rate of rent in a given area, so areas with lots of sink estates will offer a much lower allowance.

The rents officers across the land are having their arms twisted by Central Government as well, when they establish the median rates.

This housing allowance does not extend to social or council housing, however they are told to use the figures of those subsidised properties to calculate the median rate of rent for the area. In my area the waiting list is now 15years so its not really fair to include them.

In essence its another way of stiffing people out of some money as the failed economy heads south.

Subsidised properties? dont know what you mean but I am guessing these are typically low rent and conveniantly will lower benefit payouts for the government?

Typically anyone who doesnt have children can probably expect to not get a council house so would have to rent privately this could get messy.

[Chrysalis]

Really interesting question.

Logic dictates that if house prices fall and no one wants to buy, then (absolute) rents will increase.

However, my take is that the amount people are will to pay for rental housing is simply a proportion of their disposable income, and with the economy so dependant on house prices and inflation rampant, next year the feel-good factor will evapourate (if it hasn't already), people will concentrate on saving and repaying debt, and rents will remain relatively subdued and may even fall if we slide into recession.

you ignoring tho that renting is essential and not a luxury item therefore if you have the choice of paying high rent or been homeless what do you choose? its not like choosing to keep your sky premium package.

[DabHand]

It's not out of the question that rents could rise.

Once the BTLers start dumping their properties from April that'll leave a supply shortfall in the rental sector.

No.

House is bought by another BTL with no change to stock or its bought by an OO in which case one less household looking for a place to rent. Either way rental supply Vs demand ratio is unaffected.

[Chrysalis]

Google housing allowance, its all over the net at present.

Unfortunately the allowance is set on the median rate of rent in a given area, so areas with lots of sink estates will offer a much lower allowance.

The rents officers across the land are having their arms twisted by Central Government as well, when they establish the median rates.

This housing allowance does not extend to social or council housing, however they are told to use the figures of those subsidised properties to calculate the median rate of rent for the area. In my area the waiting list is now 15years so its not really fair to include them.

In essence its another way of stiffing people out of some money as the failed economy heads south.

ok after a long search for publicised LHA rates the only thing I could find was this.

http://www.therentservice.gov.uk/corporate...ptember2007.asp

If that is used for LHA then in my area it seemed generous enough I dont know about other areas tho. But then realised those figures will be before any income reductions it has one bed flat in my area at around £360 a month when they tend to go for £375 to £450.

Edited December 19, 2007 by Chrysalis

[EuGo]

Couple of points I would make are:

1. Rent is specific

To the area (high/low demand), to the property(good/poor standard), to the landlord(greedy/not greedy), to the individual(can afford/can't afford).

Whilst you can debate endlessly about AVERAGE rents going up and down in practice it doesn't matter to the individual landlord/tenant. LHA calculations is a good case in point. It does not recognize individual property condition because it is set on an artificial MEDIAN rate. But how will this translate in practice into the market place? I doubt that anyone is going to ignore the individual circumstances just because a rent rate has been set on a MEDIAN basis. It means Landlords with good quality properties will probably ignore social housing tenants because they can generally achieve better rents on the open market above the Broad Rental Market area MEDIAN. Many Tenants prefer to rent nicely decorated properties and are willing to pay slightly more for that in a nicer area. But landlords with poorer quality properties in not so nice areas within the BRMA are going to be on to a good thing because they probably won't be able to achieve those MEDIAN rents on the open market. So as long as those Landlords think they will get tenants who will pay their rent allowance to them, then they are onto a good thing. Because it means they will get higher rents which they may not be able to achieve on an open market. So they may actually experience a rise in rental prices for their specific properties.

2. Rents have risen in my area (W.London) over the last 12 months

As a Landlord I have seen rents rise in my area over the last 12 months without a doubt. If we have to talk averages, a typical 2 bed in an outter W.london borough was fetching around £750PCM in early 2007 but will now rent for around £775PCM. With my own properties rent reviews have generally seen a 3%-5% increase. But not on every property in every area. Again it's a specific case by case thing. This has not had any impact on my existing tenants ability to pay so far either. In general, I have found with my tenants they pay approximately 40% of their salary towards rent. This figure hasn't changed much over the years. When I set rents I look at averages in the area, what tenants are generally being paid and generally find that I can achieve market rate rents and tenants who are happy to pay that. However, it does differ from Borough to Borough and depends on the type of tenant you have. Some I notice are quite sensitive to a £10 change a week others are not. Again, comes back to point 1. Rent is specific. But, if I were to look at average rents, I can definitely say they've gone up over the last 12 months.

3. Will Rents rise in W.London over the next 12 months?

Bottom line - my view is yes. Analysing property lettings data from my area via our website gives us a good indication of local market trends:

So far data suggests that rents in Q1'08 have not really moved up since Q4'07 and have stayed flat on an average basis. But I still expect a rise once the year plays out. Why? Firstly, it's seasonal. Most people are strapped for cash after Xmas and Landlords generally know it's not a good time to increase rents. Secondly, with alot of uncertainty about people tend to play things safe and not rock the boat. My view is, on balance rents will rise in the area over 2008 though, but not by a lot. Maybe in the order of 1-2% so probably below inflation which means Landlords are looking at a real loss this year if they have to incur any major renovation costs. Why do I fall on the side of rent rises? Simple. Demand continues to outstrip supply in our area. Why am I confident about this? Because the W.London councils each typically have over 20,000 tenants on their waiting lists which they are trying to move from Social Housing into the Private Rented Sector. They are paying huge cash incentives (Kensington Borough up to £8000 in some cases) plus decent market rent rates if you take on their Tenants. But despite this fact, the majority of landlords in the area still prefer not to rent to Housing Benefit tenants. By definition this means they are achieving the Rents they are happy with from their properties on the Open market, even though they could get more money from Housing Benefit Tenants with all the cash incentives taken into account. Crisis in the City with the Credit Crunch and poor bonuses being paid? We're still taking on City workers and getting higher rents on the same properties than last year. And that's this week. The picture we are seeing in W2 is pointing towards a rent rise because demand continues out-strip supply of rental housing significantly by a long way and rents are still affordable to many in the area, although Buy To Live is out the reach of a significant majority. However, in the further out London Boroughs like Hounslow and Hillingdon, on average, where things are more sensitive to the wider economy and immigration flows, I still believe we will see rent rises. Why? Because there is continued investment in areas like Heathrow Airport expansion creating more jobs - where are all those people going to live? There is an all time low in available new property (especially affordable new property), and we are seeing more and more tenant enquiries coming in each week chasing less and less availble property on the website. Inevitably, underlying demand seems to been outstripping supply, which would point towards Rent increase. Without a doubt, the general economy will effect individual affordability. But in my experience of the area over the past year, all that will happen is that more people will share. I've certainly noticed in my 2 bed flats either 2 couples or 1 couple + a sharer. But the rent has still gone up on those properties in line with other properties in the area.

4. The unknown variables for 2008?

However, we have a couple of "juicy" unknowns on the Horizon for 2008. I am not going to bother trying to predict what their specific impact is going to be because we don't know. But it is reasonable to suggest the directional impact, which is applicable on a national and local level:

4a. Local Housing Allowance - Changes to pay housing benefit straight to HB tenants. Whilst existing tenancies will not be effected new take up of Housing Benefit tenants may decrease as Landlords willing to take on Housing Benefit claimants may now worry the rent won't be paid if in the hands of the tenants. Impact will be an increase of available rental accomodation to the open market and an increase in the number of HB tenants on coucil waiting lists. This may push down rents in certain areas.

4b. CGT Tax Changes to flat rate 18% - How many older retirees, 40% tax payers, or BTL investors will cash in on the upcoming CGT amnesty to a 18% flat rate? Who knows. But directionally, I suggest there will be a rise in the number of people cashing in on their rental investments (even if at slightly loss because they will still save on tax what they would have paid before the rate change). The raft of recent legislation is putting off a lot of "Armchair" landlords with small numbers of properties who will been keen to exit the sector and see the tax break as a good opportunity to do so. The directional impact will be a reduction in the number of available properties to rent in the area as they will probably be taken up by Buy To Live individuals, because at current prices and rent rates, it will be hard new Landlords to buy those properties and have sufficient rent to cover costs unless they put down a large deposit.

4c. Global Recession & Credit Crunch

Well there's lots of comments on this topic and every economist has an opinion which has covered the full spectrum of possibilities. I certainly don't know the outcome but I do know that I get calls everyday from Tenants looking for somewhere to live and can afford to pay what's being asked for at the moment and will probably be able to afford another £15 a month before the end of the year on a typical 2 bed in the area.

FORUM RULES: No business offers or advertising of any kind. <Post edited to compy with forum rules>

Edited February 22, 2008 by Bart of Darkness

[Bardon]

The answer to the question might be found in looking at the past and what is the cyclic nature of rents. One poster has broached this and compared rents over a previous cycle he said they were stable pre HPC and rose after HPC.

Where I live rents and houseprices increase at different stages of the proeprty cycle and never at the same time. The population is also increasing and forecaast to continue to grow where I am.

The cycle is as follows.

Typically median house prices start to increase and investors enter the market and median rents are stable as rental stock increases. Then as house prices reach the top investors stop investing, ftbs stop buying, developers stop building, rental stock decreases and rents increase. House prices stay flat and rents continue to increase until ftb's and investors start reentering and builders start building again and the cycle repeats itself.

I see on another thread here that building approvals are down in the UK, houses are taking longer to sell and BTL's are holding off as rental yields at all time low. One question to ask is will the population continue to increase ?

Someone must have a chart of rental prices over time preferably overlaid against house prices for at least one complete cycle.

If you look at long term population predictions it is quite interesting as not all of the developed countries will continue to have population increase but some of them will.

Edited February 23, 2008 by Bardon

[IP Newcomer]

If we have a recession then rents will most likely fall. The number of properties for rent tends to increase - as one one of the first things that happens is that people tend to rent out that spare bedroom to help make ends meet.

The return of the lodger will be a big part in any recession, if it comes. May be I'm just getting older but the lack of lodgers or people letting out spare bedrooms among my friends is really noticeable compared to 10-15 years ago.

If suddenly a whole load of spare bedrooms free up then that must do something to the housing market.

Are there any statistics out there on the numbers of lodgers over the last few years?

Edited February 23, 2008 by IP Newcomer

[Lasertrip]

Relying to the opening poster - yes your accountant is correct. If we have massive inflation then buying a house, even at today's significantly overpriced level, may work out to have been a good investment decision.

But, if you are a bit of an insane gambler, and want to make a massive leveraged bet on inflation then there are going to be much better ways of doing it than buying an over valued house.

[Bardon]

But, if you are a bit of an insane gambler, and want to make a massive leveraged bet on inflation then there are going to be much better ways of doing it than buying an over valued house.

Or play it safe with an undervalued oil and gs investment, chinese coal miner or uranium developer. Investing in antidepressant medication suppliers might be a better speculation.

[Basildon Bond]

'EuGo'

Couple of points I would make are:

1. Rent is specific

To the area (high/low demand), to the property(good/poor standard), to the landlord(greedy/not greedy), to the individual(can afford/can't afford).

Whilst you can debate endlessly about AVERAGE rents going up and down in practice it doesn't matter to the individual landlord/tenant. LHA calculations is a good case in point. It does not recognize individual property condition because it is set on an artificial MEDIAN rate. But how will this translate in practice into the market place? I doubt that anyone is going to ignore the individual circumstances just because a rent rate has been set on a MEDIAN basis. It means Landlords with good quality properties will probably ignore social housing tenants because they can generally achieve better rents on the open market above the Broad Rental Market area MEDIAN. Many Tenants prefer to rent nicely decorated properties and are willing to pay slightly more for that in a nicer area. But landlords with poorer quality properties in not so nice areas within the BRMA are going to be on to a good thing because they probably won't be able to achieve those MEDIAN rents on the open market. So as long as those Landlords think they will get tenants who will pay their rent allowance to them, then they are onto a good thing. Because it means they will get higher rents which they may not be able to achieve on an open market. So they may actually experience a rise in rental prices for their specific properties.

Not sure I get your point here? Are you saying that averages have no reflection on the rental price in an area? They have to: it's a mathematical necessity. Of course there will be exceptions that buck the average trend, but they will be necessarily fewer than those rents that follow the trend. Average rents (whether calculated as the median or arithmetic mean) are important: they indicate what the current local market will stand. Would you not agree that the average rent for a 1 bed-flat in Chelsea vs. Peckham (for instance) is not indicative of the difference in rent that one is likely to achieve in those areas? It indicates the difference in what the market will stand. Try to put a Chelsea rate on a flat in Peckham and you will have a vacant flat, regardless of the gold fittings on the taps of the shade of magnolia. Similarly if average rents take a downturn in the future then one can state that the likely rent that a specific flat will achieve in the market is more likely to also go down. Thus average rents are an indicative measure and an important point of discussion.

Basildon

[Basildon Bond]

EuGo' date='Feb 22 2008, 11:44 PM' post='982891']

2. Rents have risen in my area (W.London) over the last 12 months

As a Landlord I have seen rents rise in my area over the last 12 months without a doubt. If we have to talk averages, a typical 2 bed in an outter W.london borough was fetching around £750PCM in early 2007 but will now rent for around £775PCM. With my own properties rent reviews have generally seen a 3%-5% increase. But not on every property in every area. Again it's a specific case by case thing. This has not had any impact on my existing tenants ability to pay so far either. In general, I have found with my tenants they pay approximately 40% of their salary towards rent. This figure hasn't changed much over the years. When I set rents I look at averages in the area, what tenants are generally being paid and generally find that I can achieve market rate rents and tenants who are happy to pay that. However, it does differ from Borough to Borough and depends on the type of tenant you have. Some I notice are quite sensitive to a £10 change a week others are not. Again, comes back to point 1. Rent is specific. But, if I were to look at average rents, I can definitely say they've gone up over the last 12 months.

So far data suggests that rents in Q1'08 have not really moved up since Q4'07 and have stayed flat on an average basis.

Against your anacdotal evidence it ooks to me like the trend is very much downward.

http://www.rentright.co.uk/london/00_rrpi.aspx

[warwickbloke]

Are there any statistics out there on the numbers of lodgers over the last few years?

I understand lodgers paying uner about £80 weekly need not be declared, so figures are going to be difficult.

No figures to back up anything but I first bought a house in early 80s because it seemed that soon it would be a cheaper option to pay a fixed mortgage than ever increasing rents.

Life moved on..........

I bought a house again in late 90s because it seemed that soon it would be a cheaper option to pay a fixed mortgage than ever increasing rents.

Based on this I guess rents tend to increase with inflation where house prices jump over a short period then drop and stabilise till rents catch up.

So, rents will indeed rise till the next bout of HPI IMHO.

[EuGo]

Against your anacdotal evidence it ooks to me like the trend is very much downward.

http://www.rentright.co.uk/london/00_rrpi.aspx

I don't understand the data on this graph.

It says average rent across London as follows:

Dec £2482

Jan £1782

Feb £30

A case in point in using averages - can result in some implausible results.

Firstly, rents in December in all my years as a Landlord/Letting Agent, is always the lowest point in the year due to seasonal variation and there tends to be a pick up in Jan as Landlords are less willing to discount. The example i was talking about was about 2 bed flats specifically. And according to this very same website it does confirm and upward trend in this regard: http://www.rentright.co.uk/london/2_rrpi.aspx

Secondly, according to this there was a 29% drop in rents in Jan and a 99% drop in rent rates between Dec and Feb in London. hmmmmm

Again, the data on our site (heathrowlettings.com) is specific locally advertised data which is very specific and points towards a rising trend.

Edited February 24, 2008 by EuGo

[Chrysalis]

EuGo

on point 4a alot of people think benefit going straight to claimants is some major change when in fact this already happens except the difference is it will become cumpulsary.

Housing allowance areas are very large eg. mine covers the entire city which I think is a too large of an area, maybe they plan to get all tenants in the cheaper parts where all the prostitutes, immigrants and ex prisoners are as that area has lower rents which will pull the calculated allowance down. Its a part of the city where I have been scared to walk through after dark its even scary in the day.

[nohpc]

If we have a recession then rents will most likely fall. The number of properties for rent tends to increase - as one one of the first things that happens is that people tend to rent out that spare bedroom to help make ends meet.

I don't think this is what was seen during the last recession. At least in London I have been told rents increased. Not sure about the rest of Britain. Of course they have stagnated for the last 10 years pretty much since then.

[lets get it right]

I don't think this is what was seen during the last recession. At least in London I have been told rents increased. Not sure about the rest of Britain. Of course they have stagnated for the last 10 years pretty much since then.

Whoever told you that rents in London increased during the last recession is either:

• an idiot

• a liar

• both

Have you ever actually lived through a recession. Believe me it is not nice. If you are in business you pray your turnover doesn't go down TOO much. If you are employed you pray (hard and to a God you normally don't believe in) that you don't lose your job because you know you won't get another one easily. In a recession employers stop hiring. Pretty much full stop. Someone leaves and they welcome the chance to reduce the wage bill.

As for landlords ... well just think about it. Are they really worried because if they lose a tenant the house might stand empty because no-one can afford to rent it? Or do they think - 'hey, great, a recession! Now I can really put the rent up!'

A lot of people on here are hoping and praying for a recession to bring the housing market to its knees. In a recession there is a general mood of despondency. An unwillingness to invest in new ideas or equipment. An unwillingness to borrow to expand a business. It's not a nice thing. But one thing that is absolutely certain is that, like everything else, rents get cheaper in a recession.

I live in the 'Silicon Triangle' formed by Reading, Basingstoke and Bracknell. A place where Oracle, Microsoft, Hewlett Packard and many more technology companies have their UK headquarters. Around here there used to be a big market for family houses to rent - for people working on a contract for those companies. After the .com bust in 2000 rents for those properties about halved. When the money goes away, the rents go down.

[Chrysalis]

during recessions prices for essentials go up and luxuries down.

is rent a luxury not really.

looking at the local rent market in my area it went up alot during the early 90s then stagnated late 90s and early 2000s and the last 2 years is accelerating again. This to me is a sign that rent goes up during recessions and stagnates during boom times.

[Ash4781]

If rents do fall it will wipe out many BTL's.

How exactly does inflation come back to target during a slowdown / recession ?

[Crash Buyer]

UK rents are significantly overpriced on an international basis.

We are facing a recession with massive demand destruction.

IMO rents will come down.

[DotBomb]

In a recession, lots of people will realise the value of the 'guest' room by taking on a lodger(tax man allows 300 a month allowance). It used to be very common (last recession) but since we all got wealthy, we were too good for that. Once you start to bring on this new supply, and more people share, coupled with the economic migrants leaving, rents will fall dramatically. Just think, you could rent a room for 3x your council tax bill, all bills included. Its a no brainer. And no tie in contract.

BTLs will die