Will Rent Rises Really Result in Mass Poverty?

A report put out this week by leading housing and poverty research organisation, The Joseph Rowntree Foundation (JRF), says rent rises in the private rented sector (PRS) could put future generations in poverty and add billions of pounds to the housing benefit bill.

However, some aspects of the reports findings have been challenged by a leading housing consultant, David Lawrenson, who writes a regular blog ' www.lettingfocus.com

The JRF report identifies a lack of house building as the main culprit behind a potential long-term worsening situation for British renters. It urges political leaders to act now to prevent 'today’s primary school children being left with a housing market that increases their chances of living in poverty?.

The report?s projections are suggesting that private rents might rise 89.3% by 2040 with reference to 'pre-recession prices in 2008?, but says income over the same period may increase by only 40%.

This would mean that real household income would reach £45,500 in 2040 (compared to £32,300 in 2008) while the median private rent amount for a two-bedroom property would increase to £250 per week from the 2008 amount of £132 per week.

If this occurred, the JRF report says, 5.68 million private renters would live in poverty in 2040 compared to only 3.1 million in 2008.

David Lawrenson says he finds it hard to agree with the findings, citing recent London experience, a region with the highest house price and rent price inflation in the UK, which shows that even there rents have largely failed to keep up with the Consumer Price Index (CPI).

Quoting official figures from the Office of National Statistics (ONS), the Letting Focus Blog says that in the last 5 years to September 2014, 'London private rental inflation was actually below the CPI inflation rate in every year except the 12 months to Sep 2012 and the 12 months to Sep 2013.

?And even in these years the difference was relatively small. (In the 12 months to Sep 2012, private rents increased by 2.4% vs a 2.0% inflation rate. In the 12 months to Sep 2013, the same figures were 1.8% vs 1.1%)

?In other regions of the UK, private rental inflation was less than CPI over the last 5 years for most years.?

JRF puts this down to 'a short term effect' due to 'the substantial rise in private rental supply that arose from the general difficulty in selling owner occupied housing in flat market conditions?

David Lawrenson points out that this may or may not be the case, but if you look at other factors that may change over the next 26 years in question, 'then the JRF’s projections of rent increases start to look questionable:

The key drivers that could result in a completely different outcome to the JRF report?s findings would include:

1. A continuation of the recent improvement in the UK economy which is resulting in lower unemployment, fewer people dependant on the benefits system and a pick-up in wage price inflation.

2. A relaxation of planning rules and restrictions resulting in more house building on brownfield and some selected greenfield sites, more self build and some conversions of use from commercial to residential.

3. More institutional investment in new-build private rental housing in target areas encouraged by government tax incentives.

4. Increase supply of private rented accommodation stemming from more buy-to-let landlords investing their pensions in housing as a result of recent government pension rules changes.

5. A loosening of restrictions on availability of buy to let mortgages as the economy continues to improve. In the current year, getting a buy to let mortgage has become much easier than it was in the years from 2008 to 2013. (More buy to let mortgages will lead to more supply of rented property).

David Lawrenson, it seems, is pointing out the many factors that can come into play over the next 26 years of the forecast, and somewhat mirrors the oft quoted aphorism: 'Predictions are hazardous, especially about the future.?

Date Sources:
- Government – Office for National Statistics.
- Joseph Rowntree Press Release Nov 17th 2014: “Soaring rent rises to leave six million private renters living in poverty by 2040″
- The mortgage lender, Paragon, says there are now over 700 buy to let mortgages on the market.

... LandlordZONE.


Article courtesy of LandlordZONE

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