Rent pressure is expected to persist despite years of high price increases, reports Joel Hills, ITV’s business news and economics editor.
The cost of renting a home from a private landlord in the UK has risen at its fastest pace in 50 years.
But while headline inflation has eased significantly in the past few months, rental inflation is expected to remain at a painfully high level.
Generation Rent believes the big rental crisis is far from over, and expects average rents in England to rise by 8.5% between now and the end of 2025.
Economist and Generation Rent activist Ian Mulhern says rising rents are not driven by rising mortgage rates.
“Rising rents are not primarily coming from rising interest rates,” explains Ian Mulhern, a former Treasury economist and chairman of Generation Rent, “rather, rising rents are driven by rapidly rising profits.”
“Landlords will always raise the rent to what the market will bear, and right now, they can charge increasing amounts, because we’re seeing rapid wage growth for some workers right now, and that’s what’s allowing rents to rise,” he said.
Mulhearn’s forecast model (shown in orange below) assumes a continuation of the historically strong relationship between wage rates and rent growth and uses the latest wage forecasts, published by the Office for Budget Responsibility last month.
It also uses Office for Budget Responsibility projections for population growth and assumes 230,000 new homes built each year (the average number of annual “net additions” over the past five years).
The model has accurately predicted rent development since 2010.
“Rents will continue to rise,” says Mulhern. “We are about halfway through the jump in price levels that we can expect to see over the coming months and that is because it takes time for rents to rise in response to rising wages.”
About one in five households work in the private rental sector. Renters tend to be younger and have lower incomes than homeowners.
For the average person, a broad rise in rents in line with income is unlikely to impact affordability, but for those who rely on benefits or work, in parts of the economy where wage growth has been low (public sector, retail or… hospitality or construction), this affects affordability. It will likely be painful.
“There will be a lot of harsh justice between different tenants,” says Ian Mulhern.
“There will be a lot of harsh justice between the different tenants,” Mulhern told ITV News.
“This will cause hardship for hundreds of thousands of families. In some cases, it could lead to evictions and homelessness. Even for those who are not experiencing hardship, it means they will have to cut an enormous amount of money from relatively meager benefits in order to finance their rent.
In his autumn statement, the Finance Minister raised rates of Local Housing Allowance (LHA) – the maximum housing benefit for private renters – to 30% of local rents from April 2024. It will then be frozen again.
The new support level means 1.6 million households will earn up to around £800 a year on average.
But LHA rates have been frozen since April 2020, and during this period, private rents have risen significantly. The Institute for Fiscal Studies estimates that up to 5% of properties newly listed on Zoopla can now be covered by housing benefits.
The Joseph Rowntree Foundation, and other charities, blame the LHA freeze for increased homelessness and poverty rates, as people have to find more money from their other sources of income.
If Generation Rent projections come true, by the fall of 2025, average rents will be 14% higher than the benchmark rents used to set April 2024 LHA rates.
“Unfortunately, the Chancellor, despite the generosity of the measures she will take next April, has not solved the problem of unaffordable rents for people on benefits,” says Mulhern.
“We expect affordability to rapidly decline to where it is today, within about 18 months of the increase taking effect.”
Generation Rent wants the government to permanently link LHA and 30 per cent rates to local rents so that taxpayer support rises alongside housing costs.
In a statement, a government spokesperson said: “Our increase to the Local Housing Allowance rate means the 1.6 million private renters in receipt of Housing Benefit or Universal Credit will receive nearly £800 a year in cost relief.
“In addition, we have also invested more than £30 billion in housing support this year, while our discretionary housing payments provide a safety net for anyone struggling to meet rent or housing costs.”
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