House prices down, rents up

There is an excellent article on the BBC website for those taking the housing market paper in two weeks. Property rents are rising faster than inflation whilst house prices are falling – how can that be explained. As always, it is a combination of supply and demand factors.

“There are just over seven million households that rent their properties in the UK, and many are facing big rent increases, if they haven’t had them already. Capital Economics, a London-based consultancy, believes that rents will rise by between 10% and 11% over the next two years.”

On the demand side, the slump in house prices is causing potential homebuyers to delay their move into the market - renting provides a substitute until market conditions improve. Continue net inward migration into London and the south east is also driving demand for leased property.

On the supply side there seems to be a sharp drop in the volume of buy-to-let investors buying flats, reonvating them and them letting them out. So the number of rented properties available is not expanding as it was.

Rents are falling in cities such as Leeds where there has been an oversupply of properties mainly because of a rash of new developments.

The rest of the BBC article can be found here

Buy to Let boom may be stalling (BBC, May 2008)

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Unit 2 Macro: Migration and the UK Economy [20 May 2012]
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