THE BIGGEST FACTORS THAT AFFECT RENT PRICES FUNDAMENTAL FACTORS 2 FURNISHED ACCOMMODATION SIZE OF PROPERTY Furnished accommodation The more rooms, living claims a higher space and garden space premium than a property has, the more unfurnished rent can be claimed 3 4 LOCAL DEVELOPMENT PROGRAMS LOCAL CRIME If a local University invests in building Higher crime rates local student accommodation, this depreciate rental values. rees up demand and price. In a study of 9000 properties in Sweden, the significant crimes that affected rent were residential burglary, If a large company sets up business, this can increase rental prices. vandalism, assault and robbery. ECONOMIC FACTORS ECONOMIC GROWTH Economic growth stimulates demand. As disposable income, confidence and options available increase, so does mobility. People seek to up-grade to better quality homes, or homes with more rooms, where rents are higher. Some demand from renters may shift to ownership, lessening pressure on availability and price of the rented sector. 6. job centre INTEREST RATES UNEMPLOYMENT Higher interest rates make renting When unemployment rises, less more attractive than buying, as people will be able to afford mortgages, keeping more people in the rented sector who might otherwise people fear not being able to afford a mortgage. buy. Also, as repossessions increase, previous home owners are forced into the rental sector, adding further pressure on rental price. RECESSION Recession leads to less mortgage advances, which in turn means private builders are less motivated to build housing, which include social housing provisions. Since 2008, building programs have fallen short of targets. 10 INFLATION ELASTICITY OF HOUSING PRICES House prices move in cycles approximately every Demand for housing is described as 'income elastic'; 10-15 years in the U.K, tied to inflation. As house prices rising incomes leading to a bigger % of income being spent on houses. Conversely, in a recession, falling incomes will rise, renting becomes more attractive, as people fear not being able to afford a mortgage. mean people can't afford high rents. Increased job losses and pay cuts mean rental In turn, inflation as measured by e.g. CPI is impacted payments become a struggle. by rental prices; this is a two-way dynamic. 11 12 CONSUMER CONFIDENCE LANDLORD'S PROFIT If people are confident about their disposable MOTIVES income, couples are more prepared to split up and rent as a single person. Similarly, young Increased demand for rented people may be more confident about being accommodation mean that landlords able to afford to leave home. When lending can maximise profits by increasing rent prices. institutions are prepared to lend, deposits become more affordable as do mortgages, which in turn impact demand as a whole. 13 BANK BANK AND FINANCIAL INSTITUTION LENDING Recessions lead to lending constraints on construction businesses. Since 2008, house builders face difficulties in accessing commercial finance, increasing supply pressures, which in turn effect rental prices. Similarly, many renters will not qualify for a mortgage with stricter lending rules that call for larger deposits and an excellent credit history. 14 15 INVESTMENT PROPERTY MARKET HOUSE PRICE 3. SLUMPS People who buy cheap homes for investment purposes may rent People unable to sell their home them out until the market in a recession may try to rent recovers. This pushes it out. This pushes rental rental prices down. prices down. SOCIAL/DEMOGRAPHIC FACTORS 16 17 CHANGING DEMOGRAPHICS - INCREASING DEMAND POPULATION GROWTH The number of people living in As the number of people increase, so does demand for more homes. If population increase happens as the supply of homes available for rent falls, this pushes up rented accommodation has risen from 2.2m in 2002 to nearly 3.9m in 2013. rental prices. The number of households in England is projected to grow to 27.5 million in 2033, or 232,000 households per year. 18 19 CHANGING CHANGING DEMOGRAPHICS - SINGLE DEMOGRAPHICS - PERSON HOUSEHOLD INCREASES RISE OF TWO PERSON HOUSEHOLDS A growing number of one-person households Couple households (with or without other adults) are projected intensifies housing demand impacts. One person to grow by 34,000 per year on average, equating to 15% of households are projected to increase by 159,000 per year, (equating to two-thirds of the increase in households overall). the increase in total households between 2008- 2033. Lone parent households are projected to increase by 40,000 per annum, which amounts to a 59% increase in this type of By 2033, 19% of the household population of England is projected to live alone, compared with 14% in 2008; household between 2008-2033. this increasing trend does not seem set to change in the foreseeable future. Single person occupancy overall accounts for 68% of the growth in households. 20 Households without children are projected to increase by around a third between CHANGING DEMOGRAPHICS - 2008 and 2033 and account for most of LIVING LONGER the household growth; 201,000 per year or 87 per cent of the Improved life expectancy rates mean that total increase. by 2033, 33 per cent of households will be headed by those aged 65 or over up from 26 per cent in 2008. 21 22 CHANGING DEMOGRAPHICS - REGIONAL DIFFERENCES LARGER HOUSEHOLDS Rents tend to be higher in Population growth is the main driver of household growth, accounting for nearly three-quarters of the increase in households between 2008 and 2033. Larger households economically active areas. E.g. London rents are significantly higher than anywhere else in lead to demand for properties with more bedrooms, which the U.K. are in short supply, putting pressures on rent in this sector. 23 24 CHANGING AMENITY VALUE DEMOGRAPHICS AND PROVISION Proximity to schools, shops, green space, medical Elderly care facilities and and leisure facilities sheltered accommodation impact local rents. complexes will mitigate some of the increasing housing demand from the elderly. This will serve to control rental increases. SUPPLY AND DEMAND FACTORS 25 26 SUPPLY SHORTAGE SUPPLY INELASTICITY Persistent shortage of homes in Housing supply is relatively recent decades. 2007 Government fixed, so small changes in commitment to deliver 45,000 new demand can cause a social rented homes has fallen significant change in price. behind since the credit crunch of 2008, with the slump in the housing construction industry. 27 REPOSSESSION - MORE RENTAL DEMAND Evicted home owners are forced into the rented sector, increasing demand and potential price. FOR RENT 28 29 REPOSSESSION REPOSSESSION - DECREASED RENTAL DEMAND BACKLOG IN HOMES BUILT Mass repossessions in a slump may make more rented accommodation available as speculators buy The government target for house building may not meet the demand for new housing up homes to generate income. In hard times, people who are evicted may move in with friends or family. and deal with the backlog of When housing is offered by landlords focussed on profit, the rental prices may become volatile. unmet housing need. 30 HOUSE BUILDERS OBLIGATIONS AND MOTIVATIONS FOR RENT House builders will not build houses that they cannot selI. Building social housing is an obligation of local planning licenses. ELASTICITY OF DEMAND Housing price increases makes a switch to 32 the private rented sector more likely. As house prices continue to rise, more people will be looking for private rented accommodation. Similarly, if people are not confident of affording a mortgage, they will stick with what is perceived as a safer option of renting. SEASONAL DEMAND Second home owners may rent out their second home for part of the year. In attractive, sea side locations, occupancy 59 per cent of private renters and 23 per cent of social renters said they expected to buy a by owners stimulates property shortages. home in the UK, at some point. Some tourist areas may experience rent increases when demand is higher in Summer. - POLITICAL FACTORS 33 34 LACK OF POLITICAL WILL OR ABILITY PUBLIC POLICY AND PARTY POLITICS "...Despite the critical social and economic role that housing plays, it has tended not to have the same MANIFESTO 2010 political profile as, say, health MANIFESTC 2001 MANIFESTO 2005- and education." 35 SOCIAL HOUSING SOCIAL HOUSING PUBLIC POLICY - UNEVEN PLAYING FIELD Party manifesto commitments on issues of housing provision vary. Change of government every five years BETWEEN SOCIAL HOUSING PROVIDERS can lead to inconsistency in public policy. The housing industry are applying pressure to amend borrowing rules so that investment by public corporations Labour plans to ban letting fees. This could result in is not counted as part of the public sector debt; this a rise in rental fees to cover the costs. removes a constraint on investment in council housing. 36 SOURCES 1. http://www.lantm.lth.se/fileadmin/fastighetsvetenskap/utbildning/ Fastighetsvaerderingssystem/Foerelaesning_1_01.pdf 2. http://www.economicshelp.org/blog/7243/housing/housing-supply-in-uk/ 3. http://www.parliament.uk/business/publications/research/key-issues-for-the-new- parliament/social-reform/housing-supply-and-demand/ 4. http://webarchive.nationalarchives.gov.uk/20121108165934/http://www.communities.gov. uk/publications/corporate/statistics/ehs201011householdreport PUBLIC POLICY - 5. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/6395/17807 63.pdf NB These statistics are for England only; they exclude Wales, Scotland, Ireland 6. http://www.londonlive.co.uk/programmes/wake-up-london/clips/watch-this/wake-up- london-16th-april-2014-how-will-a-latte-affect-property-prices-and-rent- 7. http://online.wsj.com/news/articles/SB125479559237566623?mg=reno64-wsj&url=http %3A%2F%2Fonline.wsj.com%2Farticle%2FSB125479559237566623.html PUBLIC EXPENDITURE CUTS Social housing is supported through grant funding. There are "questions around how the provision of new social housing can be sustained in the light of future cuts in public expenditure." CLetsRent www.LETS-RENT.CO.UK 31