Rental increases lag behind inflation

by Gary Whittaker

The cost of renting has only increased slightly over the past year and has trailed behind both Consumer Price Index (CPI) and Retail Price Index (RPI) inflation. 

This is the key finding of the latest survey by letting agency HomeLet, which revealed that in December the annualised rate of increase in rents was just 1.7 per cent. This represented an increase in the average to £907, compared with £892 at the end of 2016.

According to the HomeLet Rental Index, this had declined significantly since 2016. In the first half of that year rents rose by more than four per cent before dropping back. Similarly, prices increased by 3.7 per cent in 2015. 

All this would suggest that the market may have reached a point where the price elasticity of demand was stretched nearly as far as it could go in 2015 and 2016, and subsequent static prices represent a recognition by agents and landlords that they were in danger of pricing their tenants out.

CPI and RPI inflation have, of course, been significantly higher, although the latter, which includes housing costs, will naturally have fallen back as increases in both rents and house prices have eased. 

The CPI rate has been stubbornly high in recent months, hitting 3.1 per cent in November. Indeed, not since December 2016 have rents increased by more than the CPI rate. 

While overall rent inflation was down, there were marked differences between regions. 

The East Midlands saw an annualised increase of 4.6 per cent in December, while the south-west, north-east and Northern Ireland all saw rents rise by more than three per cent. 

By contrast, the south-east saw rents fall, dropping one per cent. This was the only region with an absolute decline, but the pattern was not completely random, as the different price trajectories represented a levelling up of costs. Despite the increase, the East Midlands still has the lowest average rental figure of any UK region except Wales, at £611.

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23-January-18General Lettings News