Umm, why Zoe?

It pleases the Residential Landlords Association (RLA) to compare rent costs to CPI inflation, but the salient comparison is with wages, which have been stagnant or falling for over five years.

We do normally compare inflation with inflation you know.

12 comments on “Umm, why Zoe?

  1. I disagree. She’s right. The relevance of rental price growth is against salaries. If salaries were rising 1%, CPI was 5%, and rents growing 4.5%, are you really going to tell private tenants that their housing costs are falling in real terms and should be thankfull?

  2. I have to agree with PT above. Rents are ultimately paid out of wages, and if wages are stagnant or falling, rents have to mirror that. Yes there may be times when rents rise faster than wages (the last few years spring to mind as an excess of demand for rental property over supply has pushed them up) but its a short term thing. In the long term rents will mirror the level of wages in the economy, not the level of inflation.

  3. Since the author is trying to point out that rents have risen faster than wages, a comparison with wage inflation is perfectly valid. Meanwhile the landlords are making their own (different) point, that rents have risen less than other costs. Two different spins on the same data.

    Rents behave differently to other prices. A 1970s-style oil shock will push up inflation in most goods and services, but rents would remain unchanged, perhaps even fall as the economy takes a knock. Conversely if a new motorway or bridge or train line is built connecting your home to wider employment opportunities, your travel cost is deflating, but your landlord will soon put up the rent because more people now want to live in your hometown.

    Ultimately rents are sui generis; the only reason to compare them with other things is to make a statement.

  4. ” In the long term rents will mirror the level of wages in the economy, not the level of inflation.”
    There’s absolutely no reason to believe this. It’s an assumption demand will always exceed supply. Exactly the same as the one assumes property values will always rise.
    Andrew M’s partially correct. rents can behave differently from other constituents, make up general inflation. But so can other constituents. And wage costs are just as much a constituent of general inflation as anything else is.

  5. PT: The relevance of rental price growth is against salaries

    Jim: Rents are ultimately paid out of wages

    But the same would hold true for Mars bars, no?

  6. As an evil landlord, commercial as well as redidential, the prime determinant of rents is the market. We’ll rent our properties for what we can get for them (which in the last couple of years is less than we could get in the preceding years). What proportion of the tenants wages are made up by rent is entirely immaterial to us, we’re a business not social welfare. There are cheaper properties to rent so if someone cannot afford ours, they can afford another or there is the state.

  7. Just to illustrate how circular this is, I used to service landlords who let. So our wages were dependent on the rents landlords charged because that influenced what they required.. Or conversely, the rents were dependent on what we charged.
    So comparing any two constituents of inflation is fair game

  8. Indeed Doc. As another E.L., the rent collected is zero until you bring it down to what people can pay.

  9. Since wages had risen faster than inflation for most of my lifetime until Brown’s bubble burst, Zoe’s argument implies that rents should have risen faster than RPI, let alone CPI, inflation.
    Did they heck!

  10. It seems that rental costs will increase as much as the market can bear, so will inevitably end up tied to wage inflation. That said, I’m not sure it’s healthy that a significant amount of wage increases end up in the pocket of landlords. Speaking from experience, it makes it a lot harder to save up to buy a property without having to do distasteful things like live with the parents.

  11. @ Rational Anarchist
    That is quite right but it didn’t need to end up that way. One of the reasons for the housing (there are several and I could go on for hours) is that it was uneconomic to build houses for rent for over 50 years: so, instead of would-be landlords stepping in to buy cheap houses each time demand from owner-occupiers slumped at the bottom of what became a housebuilding cycle, the construction companies stopped building because they couldn’t sell the houses. In the early ’50s controlled rents were still frozen at 1914 levels in nominal money so slightly less than one-quarter in real (inflation-adjusted) terms. In many cases rents didn’t cover the cost of maintaining the property so if the landlord did not have significant other income the properties gradually deteriorated into slums.
    Ed Millionaireband wants to bring this back – possibly because more than 90% of those living in the slums his policy would create are likely to vote Labour.

  12. Can I just point out that according to ONS, private housing rents across the UK are currently rising at 1% per annum (1.4% in London). Even if the comparison is to wages, this is hardly excessive. The whole “rents are rising too fast” story is complete fiction. Or rather, it was true two years ago but the Guardianistas haven’t caught up yet (or don’t want to).

    Miliband’s proposal is to cap rises at inflation or average rent rises, not average wages. Rent rises are currently below inflation. I’m really not at all sure what the point of his proposal is.

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