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

Private rental prices paid by tenants in Great Britain rose by 2.5% in the 12 months to May 2016, down from 2.6% when compared with the year to April 2016.

Private rental prices grew by 2.6% in England, 0.4 % in Scotland and were unchanged in Wales in the 12 months to May 2016.

Rental prices increased in all the English regions over the year to May 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 complete 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 May 2015 and May 2016, Great Britain private rental prices grew by 2.5%. For example, a property that was rented for £500 a month in May 2015, which saw its rent increase by the Great Britain average rate, would be rented for £512.50 in May 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 (0.0%) continues to be below that of England and the Great Britain average (Figure 4). Rental growth in Scotland has gradually slowed to 0.4% in the year to May 2016, from a high of 2.1% in the year to June 2015.

Between May 2015 and May 2016, rental prices grew by 2.6% in England, 0.4% in Scotland and were unchanged 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 May 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 May 2016

.png (44.6 kB) .xls (56.8 kB)

Since the beginning of 2012, English rental prices have shown annual increases ranging between 1.4% and 3.0% year-on-year, with May 2016 rental prices being 2.6% higher than May 2015 rental prices (Figure 8). Excluding London, England showed an increase of 2.3% for the same period.

In the 12 months to May 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%), up from 3.1% in April 2016, followed by London (3.3%), down from 3.7% in April 2016 and the East of England (3.2%), up from 3.0%. Annual price increases had previously been stronger in London than the rest of England since November 2010. In the 12 months to May 2016, annual rental price increases in the South East (3.4%) surpassed those of London (3.3%).

The lowest annual rental price increases were in the North East (0.8%), unchanged when compared to April 2016, the North West (1.2%) up from 1.1% and Yorkshire and The Humber (1.2%) down from 1.3% over the same period.

The rental market in Great Britain continued to show signs of strength in the year to May 2016, as prices grew by 2.5%, only 0.1 percentage points lower compared with the previous month. The fall in the rental price inflation rate was driven by slightly lower London price inflation (3.3% in May compared with 3.7% in April) – though this still reflects robust growth compared with other regions. Rental price inflation was also strong in the South East (3.4%) and the East (3.2%), while it was far weaker in regions such as Wales (0.0%), Scotland (0.4%) and the North East of England (0.8%).

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 of 5.7% between January 2013 and April 2016, compared with 2.1% for rental prices¹.

Inflation in the rental market is likely to have been caused by demand in the market outpacing supply. Demand in the lettings market continues to strengthen, with RICS’ Residential Market Survey noting that tenant demand continued to grow robustly in May 2016. The strength in demand is in contrast to supply: the latest RICS survey found supply growth was broadly stable in May 2016, with demand in the lettings market outstripping supply for 30 consecutive months. The Association of Residential Letting Agents (ARLA) also reported that supply in April 2016 fell compared with April 2015. However, they highlighted regional patterns in conditions – for example, in Scotland demand was reported to be weaker and supply was amongst the strongest of the regions.

Broader economic indicators suggest that the economy has continued to grow relatively strongly over recent periods, with output increasing 0.4% in Quarter 1 (Jan to Mar) 2016, although this is slower than the 0.6% growth in Quarter 4 (Oct to Dec) 2015. Labour market conditions have continued to improve, with unemployment at 5.0% in the 3 months to April 2016, the lowest rate since before the economic downturn. These improvements, along with falls in the inactivity rate and relative stability in recent months suggest confidence in labour market outcomes remains high. Regular pay also grew by 2.3% in the 3 months to April 2016 compared with the same period a year ago – continuing the run of revived real earnings growth, although rental prices have been growing at a slightly faster rate than real wages in recent months.

Notes for Economic context

1. Please note that this comparison of house and rental price inflation refers to Great Britain only

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 28 July 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 May 2016.

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