At the end of last week, the Office for National Statistics released an experimental report on the growth in private housing rental prices. As with all things to do with housing, it is clear that the London market is very different to the rest of England, but the growth in rent nationally significantly outpaced inflation last year.
What does the chart show?
The three coloured lines show the annual percentage growth in the index of private housing rental prices since 2006. The red line represents England (rather than the UK as a whole, because the overall British index only goes back to 2011), the blue line London, and the green line England excluding London. The solid grey line is annual CPI inflation, and the dotted grey line is regular earnings growth (excluding bonuses, and measured as 3 months on the same 3 months in the previous year to smooth monthly movements).
Why is the chart interesting?
When the “housing crisis” is discussed, it is often in terms of people being able to afford to buy their own home. The alternative to buying, of course, is to rent, so in a situation where owner-occupied housing is less affordable, the cost of renting becomes increasingly important. Before the middle of 2009, although CPI tended to be more volatile, rent inflation in England was in roughly the same range as general price inflation (and significantly less than earnings growth). Rent inflation peaked in 2008, but as house prices began to fall generally, and perhaps in response to the Bank of England lowering interest rates to 0.5%, we experienced roughly a year of rent deflation across the country during 2010.
However, since 2012 the regional differences have been clear. The growth in private rent in London reached a new peak of over 5%, well above (national) inflation and earnings (which at the time were around 2.5% and 2% respectively); meanwhile rent increases in the rest of England were much lower than before the crisis, and have remained in line with earnings growth since then. As general prices levelled off in 2015, rental prices began to accelerate across the country, but particularly in London, where they finished last year around 4% higher than they were in 2014 (double the growth in earnings over that period). This is the reason why the housing crisis is especially acute in London: not only is owning a home unaffordable, but increasingly, renting one is as well.