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NRLA RESEARCH Observatory
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Growth & PRS Prices
- In the previous quarter, analysis focused on the “bumpy growth path” on whih the economy had found itself on. GDP for the final quarter last year showed zero growth.
- There was concern at the time that the economy could go into negative growth.
- However, the economy plunged as the coronavirus took a grip – the economy contracted by 2% in this quarter.
- The result of this sudden contraction means a 1.6% reduction in the size of the economy over the past year.
- Lockdown had only just begun by the time the quarter ended. It is highly probable the economy will tip into recession.
- Note that GDP data is always subject to ongoing revision – the data in the chart presented above will, in all probability be adjusted before 2020 Q2 data is announced.
- You can read more about the current performance of the UK economy and the data revisions here.
The table above focuses on price changes in the economy since 2016. It shows three different measures of price change. Firstly, the Consumer Price Index (favoured by economists as the measure of overall price change in the economy). Secondly the CPIH which factors in the housing costs of owner occupiers. Finally the chart shows the Index of Private Housing Rental Prices (IPHRP) – an index tracking the prices paid for renting property from private landlords in the UK.
Like other price indices, this latter data set is compiled by the ONS. It is the best available measure of housing costs in the Private Rented Sector amongst both new and existing tenants.
In May, the IPHRP index rose to 109.2 – meaning UK rental prices in the private sector have grown 9.2% since January 2015 (the base period for the index). It was the only index of the three to rise in May compared to April. Rental prices have now risen more isince 2015 as either of the wider price indices on the chart. The CPI has risen 8.5% over this period, and the CPIH a slightly higher, 8.6%, rise.
Though not shown here, the annual rate of change of the IPHRP is again significantly above that of the other two indices. The IPHRP for the twelve months to May remained at 1.5%. For the CPI and CPIH, annual growth fell dramatically for the second consecutive, coronavirus-hit month – to 0.5% and 0.7% respectively.
It should be noted that annual growth in the IPHRP has lagged the other two indices for 14 of the 15 months previous to April. In April & May the coronavirus has had a dramatic impact on the economy. This has yet to feed into rent levels agreed in advance of the crisis. At the same time increases in the LHA have effectively raised the floor in local rents. Finally, it may be that policies such as the Tenant Fees Act & local licensing are feeding through into sustained rent increases.
- For more detail on latest price changes – please see the ONS web site here.
- The IPHRP (Index of Private Housing Rental Prices) is “an experimental price index tracking the prices paid for renting property from private landlords in the United Kingdom.” (ONS). For more information on why the IPHRP should be the go-to measure of rental price change see this article here.
This chart shows the growth in real wages (allowing for inflation) against the growth in the IPHRP. The impact of coronavirus on real wages has been dramatic to say the least.
The index of real wages grew noticably between Feb 2018 and the summer of 2019. Since the autumn however the growth in real wages stalled, this was particularly noticable at the start of 2020.
In March – the final week of which saw the economy lock-down with the coronovirus – real wage growth was 0%. This was, at the time, the lowest level of real growth since June 2018 when annual real wages declined.
April however saw real wages reduce dramatically – average real wages are now 1.7% lower than in May 2019. The indexed value of real wages – 101.5 – is now at its lowest level since Jun 2018.
Following a period in which the gap between real wages and rental prices narrowed, it is clear that the gap in 2020 is widening considerably. The gap between the two indices is now at its widest since the base year (2015).
[Note that in this chart, wages are at a GB level, but we selected IPHRP on a UK-wide statistic. This is simply because the two data series have a common base year.]
Lending & Housebuilding
- The chart shows how the buy to let market drove UK residential loans – the proportion of buy-to-lets growing in a market recovering slowly from the Global Financial Crisis – until 2015.
- However, following the peak in 2016 (as a result of announced tax changes) there has been a noticeable decline in buy-to-lets as a proportion of lending.
- This has now become a clear downward trend – notice the declining peaks in Q1 2016 (BTL lending 21.4% of all new residential loans to individuals); Q1 2017 (14.7%); Q1 2018 (14.3%) and Q1 2019 & 2020 (14.0% for each quarter).
- It has been the case that, typically, Quarter 1 has seen the lowest level of total lending, so the Buy-to-Let market appears stronger.
- These figures largely pre-date the coronavirus. As it stood, the data seemed to show lending actiivty “topping out”. How the remainder of 2020 will pan out is of great interest.
- Follow this link for analysis of the 2019 data.
The above chart highlights how crucial the PRS is in the supply of homes, with slowly growing volumes of dwelling completions. Meanwhile, there has been a decline in the proportion of dwelling completions intended for social housing. That said, the data for Qtr 4, 2019 WAS encouraging:
- Private dwelling completions in Qtr 4 was just under 50,000. This is the highest number of completions this century.
- Social housing volumes – of which Housing Association completions make up the bulk of completions – also grew. The 10,000 social housing completions in Qtr 4 was the highest quarterly number of completions since at least the turn of the century (when our coverage of this data began).
The pattern of dwelling completions in Wales shows a combination of:
Low – and declining – volumes of house completions:
- The 21st Century peak for Wales was in 2006/07 (not shown) when housing volumes was just over 9,300 completions for the year: for the last year volume was just 60% of that level.
Low numbers of social housing completions:
- Though volumes of social housing completions are growing – and are actually at a 21st century high – social housing dwellings are being built at a level of just over 1,200 units per annum.
- Note that since 2000/01, just 345 local authority built dwellings have been completed in Wales.
These charts show the recent patterns of household tenure across each of the four Home Nations in comp[arison to the United Kingdom as a whole.
- The 1998/99 Family Resources Survey showed that the proportion of hosueholds in the PRS was 10% for Great Britain (no figure for Northern Ireland).
- In England the proportion of households in the PRS has grown from 11% in 1998/99 to 20% in 2019. In 2017 21% of all households were in the PRS.
- In Wales growth has been from the same proportion (11%) to a a peak of 19% in 2015 – in 2019, 17% of households were in the PRS.
- In Scotland, the proportion of households in the PRS has consistently been below the UK average. In 1998/99, the proportion of households in the PRS was just 7%.
- For each of the nations, the proportion of households in the PRS is now just below a peak level.
- Note that each nation now collects its own data on housing volumes making it difficult to make long term comparisons across the Union.
PRS rent levels
The above shows the median weekly rent levels in the PRS for the most recent two years. This data is published annually.
It highlights that the last twelve months have been a period when the reality of rent change have been somewhat at odds with the perception:
Overall, across the UK, median average rent grew by just £1 between 2017-18 an 2018-19
Rents grew in England by a median average of £5 per week. In Wales median rents fell by £5 per week.
- The chart above shows that low levels of rent increases, even in England, are really now the norm.
- In England, median rents over the last eight years have increased by just 1.8%pa on average.
- Even this modest growth is way ahead of that experienced in Scotland and Northern Ireland.
- In Wales, rents have fallen in money terms, let alone real terms.
- The reality is that, for many landlords, financial returms as measured by rental growth over the last seven years has barely been equal to that of a long term savings bond.
regional PRS data
- Note the differential between rent levels in the London region and elsewhere – rents in London are twice the England average.
- The North East is the English region with the lowest median weekly rent – £105pw.
- Over the twelve months prior to the production of these statistics, rent growth (not shown) has been modest – reflecting the ONS data which is produced through a different methodology:
- Across the UK as a whole, growth in median weekly rents was just 0.7%.
- Virtually of the growth could be put down to rental growth in England.
- In Wales median weekly rents fell by over 4% (4.6%).
This chart shows the annual growth rate in the IPHRP for April & May across the English regions and in Wales.
- In England, the IPHRP remained at 1.5%. That is rental prices in the sector – for both new and existing tenants – grew 1.5% in the twelve months to May 2020.
- In Wales however private rental price change increased to 1.2% in May from 1.0% for April. Note that in March rental price growth was 1.2%. Since Febraury 2019, rental prices in Wales have typically grown at an annual rate of between 1.0%-1.2% pa.
- In the South West, rental price growth continues to be the highest in England. Rental price growth in this region has been over 2.0%pa for each month since May 2019. In the East Midlands, rental price growth has been above 2.0%pa for fourteen of the last seventeen months months.
- In the North East annual rental price growth has been below 1%pa every month since January 2019, when we began coverage of this regional data. May’s growth of 0.8%pa is actually the highest for this region in this time period.
- Since 2005 private landlord claims have risen, 2019 saw the largest number of claims in the period covered by the chart.
- The growth in landlord claims contrasts with a recent decline in total claims – from 170, 000 in 2013, to 111,000 in 2019.
- Nonetheless, landlord claims (England & Wales) in 2019 were over 24,000 whilst in 2005, they numbered just over 19,000 – so this is hardly a dramatic rise in activity: The PRS has grown from around 12% of households to around 20% in the same time period.
- Repossession waiting times- that is the time between the initial claim for repossession and bailiff enforcement- have shown no decrease over the last 10 years.
- The mean and median times have lingered around the mid-twenty and 16 week mark, respectively.
- The mean time for repossession has been recorded as high as 31.4 weeks (2011).
- The feasible target waiting time of ten weeks- calculated from the Civil Procedure Rules for possession action- has not been achieved for even one quarter in this study period.
- For a more detailed explanation of this 10 week figure, please click here.
- The 29 HHSRS hazards are classified as Category I if a hazard is a serious and immediate risk to a person’s health and safety.
- The proportion of PRS dwellings with a Cat 1 hazard has more than halved over this period – from 30.1% of dwellings in the PRS in 2008 to 14.1% in 2018 (this data was published in the 2018-19 English Housing Survey* published in January 2020).
- The gap between the PRS and privately owned accomodation has clearly narrowed over this period, reflecting landlord investment in property.
This is our new Landlords’ Confidence Index (LCI), providing analysis on the key decisions and motivations driving the PRS.
The Landlord Confidence Index breaks down what landlords are telling us in each region.
The index reports on the actions, motivations and wider impacts of the decisions landlords are taking.
- The index builds up over time to be an essential snapshot of the factors underpinning the supply side of the Private Rented Sector.