Index of Private Housing Rental Prices, Great Britain: June 2016

Private rental prices paid by tenants in Great Britain rose by 2.4% in the 12 months to June 2016, down from 2.5% when compared with the year to May 2016.

Private rental prices grew by 2.5% in England, 0.1% in Scotland and fell by 0.1% in Wales in the 12 months to June 2016.

Rental prices increased in all the English regions over the year to June 2016, with rental prices increasing the most in the South East (3.4%).

The Index of Private Housing Rental Prices (IPHRP) measures the change in price of renting residential property from private landlords. The index is published as a series of price indices covering Great Britain, its constituent countries and the English regions.

IPHRP measures the change in price tenants’ face when renting residential property from private landlords, thereby allowing a comparison between the prices tenants are charged in the current month as opposed to the same month in the previous year. The index does not measure the change in newly advertised rental prices only, but reflects price changes for all private rental properties.

IPHRP is released as an Experimental Statistic. This is a new official statistic undergoing evaluation and therefore it is recommended that caution is exercised when drawing conclusions from the published data, as the index is likely to be further developed. Once the methodology is tested and assessed, and the publication meets user needs, the IPHRP will be assessed against the Code of Practice for Official Statistics to achieve National Statistic status. A description of the methodology and the sources used is included in the article Index of Private Housing Rental Prices, Historical Series. Further details regarding improvements to the IPHRP price collection methodology can be found in the January 2015 article.

The IPHRP is constructed using administrative data. That is, the index makes use of data that are already collected for other purposes in order to estimate rental prices. The sources of private rental prices are Valuation Office Agency (VOA), Scottish government (SG) and Welsh government (WG). All 3 organisations deploy rental officers to collect the price paid for privately rented properties. The sources of expenditure weights are Department for Communities and Local Government (DCLG), Scottish government, Welsh government and VOA. DCLG produces estimates of the private rental dwelling stock for England and its regions. Scottish government and Welsh government produce estimates of private rental dwelling stock for Scotland and Wales.

Great Britain rental prices

The Great Britain private rental price series starts in January 2011. This is the date for which all the sources for constituting countries are available on a consistent basis. This index has seen small and gradual increases since January 2011 (Figure 1).

Between June 2015 and June 2016, Great Britain private rental prices grew by 2.4%. For example, a property that was rented for £500 a month in June 2015, which saw its rent increase by the Great Britain average rate, would be rented for £512.00 in June 2016. Rental prices for Great Britain excluding London grew by 2.0% in the same period (Figure 2).

All the countries that constitute Great Britain have experienced rises in their private rental prices since 2011 (Figure 3). Since January 2011 England rental prices have increased more than those of Wales and Scotland.

The annual rate of change in the IPHRP for Wales (-0.1%) continues to be well below that of England and the Great Britain average (Figure 4). Rental growth in Scotland has gradually slowed to 0.1% in the year to June 2016, from a high of 2.1% in the year to June 2015.

Between June 2015 and June 2016, rental prices grew by 2.5% in England, 0.1% in Scotland and fell by 0.1% in Wales (Figure 5).

The IPHRP series for England starts in 2005. Private rental prices in England show 3 distinct periods: rental price increases from January 2005 until February 2009, rental price decreases from July 2009 to February 2010, and increasing rental prices from May 2010 onwards (Figure 6). When London is excluded, England shows a similar pattern but with slower rental price increases from around the end of 2010.

Figure 7 shows the historical 12 month percentage growth rate in the rental prices of each of the English regions.

Figure 7: IPHRP percentage change over 12 months by English region, January 2006 to June 2016

12 month percentage change

Source: Office for National Statistics

Notes:

1. Not seasonally adjusted.
2. The dotted grey line shows the average England 12 month percentage change.

Download this image Figure 7: IPHRP percentage change over 12 months by English region, January 2006 to June 2016

.png (45.1 kB) .xls (57.3 kB)

Since the beginning of 2012, English rental prices have shown annual increases ranging between 1.4% and 3.0% year-on-year, with June 2016 rental prices being 2.5% higher than June 2015 rental prices (Figure 8). Excluding London, England showed an increase of 2.2% for the same period.

In the 12 months to June 2016, private rental prices increased in each of the 9 English regions (Figure 9). The largest annual rental price increases were in the South East (3.4%), unchanged from May 2016, followed by the East of England (3.1%), down from 3.2% in May 2016 and London (3.0%), down from 3.3%. Annual price increases had previously been stronger in London than the rest of England since November 2010. In the 12 months to June 2016, annual rental price increases in the South East (3.4%) and the East of England (3.1%) surpassed those of London (3.0%).

The lowest annual rental price increases were in the North East (0.8%) and the North West (1.2%), both unchanged when compared with May 2016 and Yorkshire and The Humber (1.3%) up from 1.2% over the same period.

The rental market in Great Britain continued to show signs of strength in the year to June 2016, as prices grew by 2.4%, just 0.1 percentage point lower than in May 2016. The fall in the rental price inflation rate was driven by lower London price inflation (3.0% in June compared with 3.3% in May). Rental price inflation was stronger in the South East (3.4%), the East of England (3.1%) and the East Midlands (2.4%), while it was far weaker in regions such as Scotland (0.1%) and the North East (0.8%). Wales experienced house price deflation (-0.1%) in June 2016; 12-month rental price inflation in Wales has not reached 1.0% since March 2012.

Looking at data from the UK House Price Index over a longer period shows residential house price growth has typically been stronger than rental price growth for a number of years, with an average 12-month rate of house price inflation between January 2013 and May 2016 of 5.9%, compared with 2.1% for rental prices.

Inflation in the rental market is likely to have been caused by demand in the market outpacing supply. On the demand side, the Royal Institute of Chartered Surveyors (RICS) reported an increase in demand in June in their Residential Market Survey, however, demand from prospective tenants decreased marginally in May according to the Association of Residential Letting Agents (ARLA). On the supply side, RICS reported that new landlord instructions fell slightly in June and ARLA reported that the supply of rental stock fell in May 2016 and was lower than in May last year.

Broader economic indicators suggest that the economy has continued to grow relatively strongly over recent periods, with output remaining unchanged at 0.4% in Quarter 1 (Jan to Mar) 2016, although this is slower than the 0.7% growth recorded in the final quarter of 2015.

Labour market conditions have remained robust in recent months by historic standards, with employment at a record high and unemployment low at 4.9%, the lowest rate since before the economic downturn. These improvements, along with falls in the inactivity rate over the last 12 months, suggest confidence in labour market outcomes remains high.

Regular pay also grew by 2.2% in the 3 months to May 2016 compared with the same period last year – continuing a revival of real earnings growth; however, rental prices have continued to grow at a slightly faster rate than real wages in recent months.

IPHRP is classified as an Experimental Statistic to allow for evaluation of the output against user needs. As part of the ongoing development, we are considering how to improve IPHRP ahead of potential assessment as a National Statistic.

One of the main user requirements was for IPHRP to be published monthly. In response to this requirement, from February 2016, this publication changed from a quarterly to a monthly release. The next monthly publication will be 24 August 2016.

For further details, please contact hpi@ons.gov.uk

We welcome your views on the data presented in this statistical bulletin. Please contact the Housing Market Indices team using the email address below to discuss any aspect of the data, including your views on how we can improve the data.

For further details, please contact hpi@ons.gov.uk

The IPHRP dataset provides full historical series for the tables accompanying the IPHRP statistical bulletin. This month, the tables have been updated with the latest monthly estimates for June 2016.

The IPHRP weights summary provides aggregated weights for indicative purposes only. The IPHRP weights are updated annually in February of each year.