Rental price growth: Weak but sustained - An analysis
Key Points
In July the IPHRP for the UK grew by 1.3% – the third consecutive month rental prices have grown by this amount.
The Index of Private Housing Rental Prices (IPHRP) continues to be below key measures of inflation – this is the 30th consecutive month the IPHRP has been below established measures of inflation (CPI & CPIH).
Private rental prices, after a period of rapid growth until the start of 2017, have continued to climb slowly but surely – with annual growth in the UK being above 1%pa for the last eight consecutive months.
Evidence continues to indicate that growth in prices in the private rented sector is being driven by change outside London.
The pattern across England is becoming one of sustained but weak growth in rental prices. In Wales however, rental price increases are decelerating.
Limited price growth in the North East and London is noticeable. In the North East there is some evidence of weak rental price growth, less so in London.
Measures of price change
The Year-on-Year measures of price change show that the Index of Private Housing Rental Prices (IPHRP) – the measure of price change tenants face (for more information on the IPHRP see here) – continues to be below key measures of inflation. See Chart 1 below.
In July, the IPHRP grew by 1.3% – the third consecutive month rental prices have grown by this amount. This compares to consumer price growth (CPI) of 2.1% and CPIH – which includes a measure of the costs associated with owning, maintaining and living in one’s own home (ONS definition – see here for more details).
The IPHRP has been 1%pa or higher for the last eight consecutive months.
Whilst Chart 1 shows the slow growth in Private Rental Prices compared to inflation for 2019 only, the relatively slow growth has been a trend established for much longer: The last time the Annual growth in the IPHRP exceeded that of either of the other two measures was in January 2017.
This therefore is the 30th consecutive month the IPHRP has been below the established measures of inflation.
Chart 1: Progress of the IPHRP in 2019 against other indices
Longer term trends
Chart 2 shows a comparison of the three inflation measures and how they change over time. Each of these inflation series has been indexed by the ONS.
It shows how private rental prices, after a period of rapid growth until the start of 2017, have levelled off. The CPI/CPIH have taken a more cyclical pattern, but has clearly risen at a much faster rate than the IPHRP since 2017:
Chart 2: Private Rental price growth vs other inflation indices
The importance of London
London is always seen the key benchmark for an analysis of property markets, and the Private Rented Sector (PRS) is no exception. With 38% of households in Inner London being in the PRS, there is particular attention on price changes in the capital and the effect these have on the index as a whole.
Chart 3 below shows the monthly change in the annual growth of rental prices in the UK – one series includes London in an all-UK analysis, whilst the other excludes the capital.
The private rental price index has been higher when London is excluded for quite some time now – since January 2017 (see Chart 3 below). Since the end of 2018 the rate of change of the rental price index has been higher with London included, but price growth (inflation) has remained higher if London is EXCLUDED.
This chart is therefore evidence which suggests that, although the London private rental prices are recovering, that recovery is weak. Any growth in the IPHRP – limited though that is – is still largely a product of rental markets outside the capital.
Chart 3: Private rental housing prices - incl./excl. London
The English regions & Wales
Finally, Chart 4 below presents the IPHRP across the English regions and compares the growth in private house prices in each region to that of England as a whole. Chart 4 also presents the data for Wales. The Chart simply presents the annual growth in prices recorded in July, and compares that to the growth in June.
Annual growth has risen in England as a whole – from 1.3%pa in June to 1.4%pa in July. In Wales however, growth has fallen (from 1.1%pa to 1%pa).
On the positive front, in no English region did the growth in the annual IPHRP fall. Three regions – Yorkshire & the Humber (from 1.8%pa to 1.9%pa), the North West (1.3% to 1.4%) and the West Midlands (1.5% to 1.6%) – experienced increases of one-tenth of one percentage point in the annual growth of prices in the privately rented housing sector.
In the West Midlands growth in annual price change has now been sustained for three months.
Only in two English regions is the growth in private rented housing below 1%pa – the North East and London:
The North East can take some comfort from the fact that there has been an increase in private rented prices from 0.5%pa in June to 0.7% in July. The North East is the fourth region (the other three are outlined above) to experience an increase in the index
However, at just 0.7% this region has the lowest level of growth in the IPHRP index. On the upside, in terms of both a percentage point increase and a percentage increase in July compared to June, the North East has been the region with the largest positive change in rental prices.
For London however, the picture remains gloomy – one has to go back to August 2017 to find when IPHRP growth in London was greater than 1%pa – this is the 23rd consecutive month the IPHRP has been below 1%pa in the capital.
Chart 4: PRS rental price growth across England & Wales
Footnote: About the Index of Private Housing Rental Prices
The Index of Private Housing Rental Prices (IPHRP) measures the change in the price tenants face when renting residential property from private landlords.
This gives a comparison between the prices tenants are charged in the current month as opposed to the same month in the previous year. The index does not only measure the change in newly advertised rental prices, but also reflects price changes for all private rental properties.
The index makes use of data that are already collected for other purposes to estimate rental prices – a list of sources can be found here.
The IPHRP is an Experimental Statistic. These are statistics that the ONS are testing phase and are not yet fully developed. This means there has to be some caution attached to the figures – they are also subject to some change and modifications.
This article has been written by Nick Clay of the NRLA. The views here are those of the author and not necessarily those of the NRLA itself.
The NRLA reserve the right to clarify and correct the information and analysis in this post.
Please note, the data presented here is often revised by the ONS. The NRLA may or may not revise the analysis accordingly.
