In the long term, rental prices tend to rise in line with average earnings: the ratio of rents- to-earnings in the UK has remained broadly stable from the turn of the millennium to the eve of the pandemic. [...] Resolution Foundation Through the roof | Recent trends in rental-price growth 4 With that in mind, it is worth revisiting what has happened to the UK over the two consecutive periods of economic upheaval the UK has witnessed since the early 2020s: the Covid-19 pandemic and the cost of living crisis. [...] Although the lack of reliable and granular rental price data in the UK makes drawing out the drivers of rental prices over the long term challenging (see Box 1), there is significant empirical evidence both in the UK and globally that, over the long term, rents tend to rise broadly in line with earnings.17 This is shown in Figure 9, which illustrates that, although the ratio of rents to earnings h. [...] As shown above in Figure 14, the experience in the US is that, even as the rate of growth for new tenancies falls, the average rent paid by the whole population of renters will continue to rise rapidly – and potentially rise faster than average earnings growth – as renters who have yet to see the large rent hikes reach the end of their tenancy, or are forced to accept within-tenancy price rises. [...] As a thought experiment, if we assume the ratio of rents to earnings in the UK will return to its pre-pandemic level in three years’ time, then the total ‘stock’ of rents would need to see over 13 per cent price growth over the next three years (or 4.2 per cent a year on average), well in excess of the forecast 7.5 per cent growth in average earnings.
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- 29
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- United Kingdom
