Current Rental Market Performance: Average rents barely keeping up with inflation

publication date: Oct 30, 2012
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

Average rents barely keeping up with inflation

Having studied landlord returns and research over the last quarter, (see our report ‘Landlord's returns aren't as healthy as currently reported') it is apparent that many landlords' returns are stable over the last 12 months, albeit over the last ten years, landlords aren't earning at the levels they used to. 

Rental Indices - September 2012

* Belvoir index tracks slightly lower than other rental indices as it includes Scotland, and has few London based agents 

These indices give a good indication of current rental movements, albeit Homelet and LSL do seem to reflect more of the growth seen in London as opposed to the little growth seen outside of the capital. According to Homelet, rents have grown this year by 9.5%, while LSL suggests a growth of 3% and Belvoir, which tends to operate mostly outside of London, indicate little or no growth at all.

Homelet's rental averages when London is removed however, do match Belvoir's statistics more closely. According to Homelet, "When Greater London figures are removed, [September's] data shows the average cost of renting a home has decreased by 2.7% down to £678."
It is also worth noting that looking back over time, rents are recovering as opposed to ‘being at their height'. The LSL index tracks rents back to 2009, while Homelet started in 2010. The Belvoir Index in comparison has been monitoring rents since March 2008 and therefore has a greater level of insight into rents since the credit crunch started.

This timeframe is significant, as Belvoir rental figures record rental heights in September 2008 and then the falls of up to 20% in areas such as the city of Nottingham over the next few months.  On average, their figures suggest in 2008/2009, rents fell on average by 5%. With figures going back this far, Belvoir's Index suggests that in many cases while other indices are picking up a trend of ‘rents rising to their height', the reality is, outside of London, ‘rents are recovering to previous heights'.

Overall, it appears that rental growth, in the main this year, has been relatively static outside of London and when taking inflation into account, rents are really tracking well below other cost increases, such as utility bills.

Regional Rent Variations
For rents to have kept up with inflation over the last five years, they need to have increased annually by an average of 3%. In the main however, rents have not been increasing at this rate by landlords. In addition, most landlords have seen between 10 and 20% or more wiped off the value of their property since 2007.
Average rents are influenced by various changes at a local level. The main changes in rents depends on pure supply and demand, which can vary from one month to the next. Rents also suffer from seasonal variations. For example, September is a big month for student lets, which tend to have higher average rents as rooms are rented out separately than professional or family lets, so the average rent goes up.

Other influences on local rents include the number of new builds. These typically rent at a higher price, and this could be 5-10% higher than the average rent for a ‘lived in' property. Finally, for some offices, as more ‘reluctant landlords' come forward, they rent out their three plus bed homes as opposed to the normal two bed, which can raise the average rent, but doesn't mean all property rents are going up in value.

National Picture v's Regionally
Regions - England & Wales and Scotland

Regional Rental Indices - September 2012

The chart above shows the different performance of rental figures for September 2012 versus September 2011. Homelet and Belvoir seem to track average rent levels by region at pretty similar levels, while Acadametrics/LSL track slightly lower. This may be due to the fact that Acadametrics/LSL data is based on all rents (existing and old) as opposed to newly rented properties. 

The regional indices summary shows:-
  • All three rental indices record growth in the North West, East Anglia, the South East and Greater London
  • All three indices show the East and West Midlands are pretty static
  • LSL and Homelet record rises in Yorkshire and Humber where Belvoir show a small fall
  • The South West shows small falls up to 1.5%, while Belvoir show increases up to 4.5%
  • North East shows rents to be static to small falls of up to 3%
  • Belvoir shows Scottish rents to be static while Homelet suggest a large rise of nearly 5%, however this may be due to Homelet covering higher rising rents in Edinburgh
  • Welsh figures from LSL suggest falls, Homelet a small rise and Belvoir a large rise. The latter though is due to additional offices being added in Wales, overall the indices agree rents are fairly static in Wales
All in all, the indices don't seem to vary a huge amount. What they show is the claims of huge rises in average rents and rents reaching their heights, quickly disappears when we move away from a UK average to each region.

From a landlord and tenant perspective, it shows how important seeking advice from a lettings specialist such as Belvoir is to help understand whether rents are rising, falling or stable.

What's happening to room rents?
With a large number of landlords looking to improve their rental returns by renting out rooms, it is useful to look at what's happening to room rents on a regional basis. This analysis will be particularly useful overtime as it allows us to monitor the impact of additional licencing by local authorities such as Oxford.          

Regional Weekly Average Rents

Spareroom's latest data suggests that during last the quarter, rents fell in 29 UK post towns, stayed the same in 28 and rose in 62. The biggest rises were in Scotland - Dundee (10.13%), Edinburgh (8.91%), Falkirk (8.64%) and Kilmarnock (6.41%). Rom rents in St. Albans, Hertfordshire also increased by 5.26% during the last quarter.

Regionally versus last year, Easyroommate suggests that Nottingham is renting at around £70 per week which is just up from £69 last September with Newcastle down 25.7% at £70 to £52 per week this year. However, weekly rents in Oxford and London have both increased year on year from £95 to £104 (9.48%) and £115 to £130 (13%) respectively.

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