Why it's important to be more balanced in our reporting and understanding of the whole property market - to better reflect people's experiences of it.
Property prices do matter- but not as much as you might imagine from the news coverage.
COFFEENOMICS
A quick explanation of the property market over a coffee in my kitchen
Why The News Is Wrong - or Unbalanced
For a start about 37% of the nation rents their home - that's 7 million households who may be bemused by the monthly feast over property prices - which don't directly affect them and hardly any attention is paid to changing rental costs which have a very direct effect on their financial well-being.
In fact, I can see no good reason why the news is skewed in that way. We should, therefore, be giving much more prominences to rental costs alongside property costs.
Own home without mortgage | 32.8% |
Own home with mortgage | 29.7% |
Privately rent home | 20.3% |
Live in social housing | 17.1% |
Table Data from census [3]
Of course in certain parts of the country, a lot more people rent than own and will be much more interested in rental costs than property prices. For instance. in Hackney in Inner London had the lowest (28%) percentage of homes that were owned by the tenants. Even London's wealthy Westminster, has the country's highest proportion of private-rented dwellings, at 43% in 2020[1]
You might I think fairly argue that property prices will eventually effect rental prices - because landlords will have to pay more for the properties they buy-to-let. But this is a much longer-term trend and doesn't really have a influence on the monthly property price news flow which is so widely reported.
Inflation - What inflation?!
So here's the thing - inflation in general has gone wild (see the bright orange line below)., By comparison however, private rental costs have been increasing at a very modest rate.
That sets rental inflation in some sort of context.
But while it is not as bad as you might think - it's probably also not as good. That's because you should be a lot more worried by a 4% increase in your housing costs than a 10% rise in the cost of baked beans - because the the 10% rise in the cost of beans is costing you an extra 12 pence and the 4% rise in rent is costing you an extra £31.
Where you have seen relatively volatile swings in prices are in property purchase prices, which in a short period have shifted from 7% year on year increases to over 14% year on year increases, as you can see in the diagram below where the property market tracker looks more like a runner's heart beat than anything else.
Cost of Renting
It is twice as expensive to rent in London as elsewhere - and that's just if you are living in the average home - not one of the super fancy ones.
When looking at rent (or indeed property prices) I think it is better to judge them by the median average rather than the mean average. That's because some property prices are so wild, it messes up the whole average.
A quick joke and a reminder of what the median means: OK - a joke is too strong a word for it - but it is a light hearted way to understand the misleading effect averages have on your understanding of what is going on.....
There's a break room at a computer assembly factory with 10 workers on basic pay - having a coffee and a donut. The door opens and amazingly - Bill Gates walks in to say hello and thank them for their work.
Suddenly - on average - everyone in the room is now a multi- millionaire. That's because Bill Gates is so rich that he has pulled up the average (the mean average) of all the workers. In reality of course
all the workers are still on basic pay. If we looked at the median average we would ignore the extremes of the salaries of everyone in the room and just, put all the salaries from lowest to highest in a line and pick the. middle one. That way of looking at the average - still shows the average worker is on basic pay and is a better reflection of the true nature of most people's experiences in the room.
The median - a definition: It is the middle number in a sorted list of numbers and can be more descriptive of that data set than the average. By choosing the median you try and get rid of the effect of very expensive but unusual rents/property prices affecting the average and giving you an unrealistic view of the experiences of most people.
So How Much Do We spend On Rent Each Month?
The median monthly rent was £795 for England, recorded between April 2021 and March 2022. this is the highest ever recorded.
London had the highest median monthly rent at £1,450; this is nearly double the median monthly rent for England.
The North East had the lowest median monthly rent at £505.
The difference in monthly rental price between the most and least expensive local authorities was nearly £1,800.[2]
Why Can Different Measures Of Rental Prices Tell Different Stories?
The Office For National Statistics claims rental prices are rising at around 4% per year.
Right Move's Rental Price Tracker claims rents are rising at around twice that rate, 9.7% in 2022. [4]
Zoopla's Rental Market Report claims rents are rising even fast than that, up from more than 12% in 2022. [5]
So is someone wrong and someone right?
No - they are probably all right - they are just measuring different things - and it's important for us to understand that before we share the news.
A month in which a property is empty, costs landlords a lot of money. As a result they tend to raise rents more slowly for tenants who are already occupying a property - so that they don't get fed up and move out. It can be self-defeating to raise rents if they actually end up getting nothing for a month whilst they try to find a new tenant to pay the higher rates. This "agreed rent" is what the ONS tracks.
Commercial companies such as Rightmove and Zoopla look at something different. They are analysing "advertised rents". Those are the rent charges landlords are asking for new agreements - when the tenancy changes. The landlord is taking the opportunity of a change to raise the fees they charge.
So both are right - but the different also tells us something interesting. Staying in your rented home for longer periods of time may get you a better deal than always changing and having to pay the faster rising advertised price.
A Bath Analogy
A 'helpful' analogy to understand the difference in these measures was introduced by someone who worked at Countrywide rental agency and quoted by no less an authority than the ONS.
The ‘newly advertised’ rents are represented by the flow of hot water into the bathtub, while the stock of rents are represented by the water in the tub.
Zoopla etc are measuring the temperature of the hot water flowing into the tub, while the ONS are measuring the overall temperature of the bathtub.
The So What? is a good question - and here's the answer. Reporting on property prices is clearly important - but we should add alongside that, a more closely watched analysis of the rental market. Whilst doing that, we should be careful about what rental prices we choose to look at (see the bath analogy above). A change in the way we look at these issues, would give a more balanced picture of the experiences of different people around the country. It would help addresses the issue that we should not exclude the interests of those who don't own property and may never own property - in our reporting, analysis, discussion and policy formation around the economy and the place property plays in it.
Sources: [1]https://www.ons.gov.uk/peoplepopulationandcommunity/housing/articles/researchoutputssubnationaldwellingstockbytenureestimatesengland2012to2015/2020
[5] https://www.zoopla.co.uk/discover/property-news/rental-market-report-december-2022-rents-rising-fastest-in-major-regional-cities/
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