Rising Rents, Rising Capital

Why are rents increasing?
By Ben Yarrow
11 October 2019

Rents are increasing. 

We all know this. However, the usual debate takes place when we ask why? An increase in demand, first and foremost, is the reason we’re all paying more to rent - the reason for this is also a frequently debated topic, and a much more cloudy issue, but the main point is more and more people are struggling to get onto the housing ladder and are being forced into renting. 

In 2015, it was revealed, London rents have risen 4.1% in just one year with the rest of the country on average seeing an increase of 2.7%. A Business Manager at Clear Property in Exeter was quoted earlier this year saying  “Over the past three months, demand for rental property has increased massively. We just can’t get enough lettings stock to satisfy the demand, and we’re struggling to keep properties on the market for more than 24 hours.” - this massive increase in demand translates into an increase in price. But again, why so? 

London Assembly member for the Green Party, Darren Johnson, says private landlords and lack of intervention from councils and government are to blame. “With record low interest rates and flat consumer prices, there’s no reason for landlords to put their rents up so much except greed” he adds “The mayor has refused to back rent controls and more secure tenancies, which could help people facing particularly big hikes. Just saying he is building more homes doesn’t cut it, especially when so many are snapped up by investor landlords to let out at very high rents, out of the reach of ordinary Londoners”.

In this data published by property lending firm, LendInvest, the average rental yield by postcode is displayed and it somewhat supports what Mr Johnson is saying. The rental yield is calculated by dividing the price of a property by the yearly rent, leaving you with a percentage and shows here that, especially in London, Landlords are getting a decent return. Things look even better for Buy to Lets when you scroll along to view the capital gains in the past five years - West London saw an increase of over 11%. 

Check out the LendInvest Tableau chart.



Many will argue that after George Osborne’s tax measures against Buy To Let landlords earlier this year means that landlords are being hit hard, The Countrywide Lettings Index suggests that these measures could see a 0.2% drop in yields, which according to CITY AM equates to about 11 months income. However, these don’t come into place til next year - so if rent is rising at this rate before the landlords are hit by tax cuts, what’s going to happen when the chancellor's proposals actually come into play? 

Whatever it is, I think we can assume it’s coming out of the tenants pocket

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