As the Guardian notes this morning:
Average private rents in Great Britain have soared by more than a quarter since the start of the Covid pandemic and will keep rising, according to an analysis.
As they added:
The typical private rent will end this year 9.5% higher than in December 2022 and then rise a further 6% in 2024 before hitting an “affordability ceiling”, according to the estate and lettings agent Savills.
Overall, rents increased by nearly 6% in the first eight months of the year, its research found, taking total growth since March 2020 when the first Covid lockdown began to 26%.
What is the explanation? It's straightforward. Landlords are selling up because their costs - almost entirely down to borrowing costs - are going through the roof, and all of that is down to the Bank of England and their interest rate rises.
Millions of households are now living closer to destitution because the Bank of England has no idea how to identify the cause of inflation or tackle it in the circumstances in which we found ourselves.
In response, Labour and Tories lend the Bank their total support.
What sort of conspiracy against the people of this country is going on here?
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“the Bank of England has no idea how to identify the cause of inflation”
It is to a large extent a replay of the events of the early 1970s – Yom Kippur war – oil price hike (& collapse of Bretton Woods) with all the knock-on effects that drove inflation. The broad contours are very similar – inflation driven by a short term price spike in energy markets, with a few differences e.g. pulling gas out of the North sea now costs circa 2pence/MWh (buying on Henry hub is circa 3UScents +/-) using local prices to “adjust” world prices would calm things donw, but UK gov has decided that world markets should define local prices & gov decide that “independent” central banks define interest rates. The neo-con interlude (1980 to now) means that markets rule and govs must not interfere – cos that’s anti-market (exception: European Commission has gone for collective gas buying – which makes a great deal of sense – traders got so upset & went to the ECJ – and lost). Markets, good for traders, less good for proles.
Thus the cause of inflation is a global energy price spike, over which local/national interest rate spike will have no impact on inflation whatsoever – but bankers like it, so that’s OK. The interest rate spike 1980 – 1984 evicerated UK industry. One wonders what it will do this time.
Bang on. The increasing difficulty (becomes cost) of obtaining energy when it’s needed in a useful form means that average disposable income will continue to drop. In an era of economic decline, the winning strategies will be based on cooperation rather than competition. Markets out, planning in. Private provision out, public provision in. The neoliberals are dinosaurs., and the meteor has hit.
Mike, Bretton Woods didn’t exactly collapse. Nixon, in the absence of any discussion with anyone, unilaterally and by fiat took the US and, thereby, everyone else off Bretton Woods, claiming, “We are all Keynesians now”, in 1971. And Keynes was at the Bretton Woods get-together. Not long afterwards, Keynes had his fatal heart attack.
But the American reserves of gold were running down as the US was running a balance of payments deficit, largely due to the escalating costs of the Vietnam war and other defence commitments. At some point the gold reserves would run out.
The European allies got criticised by the Republicans as reducing the US commitment to Europe would have meant the allies would have to pay more or accept being less well armed. They weren’t willing to do that. One could argue that the Soviet threat was over stated but it was still there. The French insisted on their right to be paid in gold. De Gaulle sent a French destroyer to pick up gold payments.
Nixon decided to ‘come off gold.’ He thought he had few options.
You are right, but I didn’t think it needed saying in the context.
It is the usual conspiracy of the haves against the have-nots. It has just become more shameless since Labour stopped being an ethical opposition party because it thought that would give it a better chance of winning the next election.
I think the maxim “never put down to malice that which can be explained by incompetence” is appropriate here.
As a non-economist (but a software engineer, accustomed to dealing with numbers and data) it seems to me the BoE & Treasury are practicing economics by rote. They simply follow a rule book without considering whether the rules they follow actually apply.
You are right
Or as Steve Keen likes to say, most of today’s economists are like those astronomers and scientists who believed that the sun went round the earth. They bent their theories to fit this assumption and those who pointed out that maybe the earth goes round the sun were prosecuted.
So it is with those orthodox economists propping up neoliberalism.
Exactly why I call Reeves, and (in this circumstance) her sidekick, Sir Keir Starmer, flat-earther economists.
I would have thought they were employed to assess the overall situation and decide which rules should apply. That is what we pay them their extortionate salaries for!
I think there is something else going on as well. Let’s call it greed.
Certainly it is true that some landlords are under pressure, especially those that financially stretched themselves during the heyday of BTL with mortgage IR’s low, with the mistaken belief that they would only ever stay low. (are there any numbers from the banks that show the actual number?) The BTL equivalent of “it’s different this time”. High IR’s are clearly not helping, but as we all know, or should by now, the housing crisis and affordability goes a lot deeper than the current BoE response.
But I also think that there are probably many landlords who are not burdened by the current IR policy of the BoE. They are seeing rents going up and filling their boots. Because they can. A case in point, admittedly a minor one, but what about all those Tory MP’s that are part time landlords. I doubt whether they are financially stretched. And my own landlord. I don’t think he is a BTL landlord. He’s been in the game a long time, has several properties, most likely all paid for. I think he’s probably doing very well judging by the rent increases. As usual, not all is as it seems. There are some big winners out of the current crisis and that will include landlords (but clearly not all).
Meanwhile the politicians drag their feet on what is arguably the most important thing that affects us all. The security of having somewhere to live and a roof over your head.
You are right: some landlords are unbdoubtedly just profiteering
In fairness, some are also not doing so
“You are right: some landlords are unbdoubtedly just profiteering”
Indeed they are, indeed they are.
https://twitter.com/ByDonkeys/status/1727243549035413943
There is an aspect of social housing that is rarely if ever commented on and it is that it provided a degree of competition to the private rented sector that kept rates down. As well as providing housing to those who could afford nothing else, and enabling others to save and eventually buy their own place.
That long period of very low interest rates combined with banks being able to create money and flood the housing market, meant that buy to let became both possible (if you had money and/or owned property already) and highly attractive. An income to cover your costs and you reap the gains of property price increases. A lot more attractive than what could have been more productive investments. In city centres, buy and leave it empty – the price increases are attractive enough.
But the foundation is a healthy stock of social housing. Time to create the money to build them and be merciless on the property developers and builders who are a big part of the problem in blocking them. Housing that is where it is needed – near jobs, schools, doctors and shops – with decent public transport. That means in or very close to cities and small towns. Funnily enough the ‘nimbies’ who object to estates on green belts far from any of the above might have a point.
sadly it is common for those ‘property developers and builders who are part of the problem’ to be rather close friends with local authorities. Might be a list of reasons why. Needs root and branch reform. Shine a bright light into the gloom.
As it happens I spoke to 4 different councils as part of a piece of work last year, all of whom saw the developers pretty much as the ‘enemy’. Sitting on land banks, only wanting to build what was most profitable to them with little or no interest in social or affordable housing. With the developers being able to out-gun the much diminished local authorities in terms of legal and financial fire power. At the same time I can identify 2 Conservative run councils close to me where they certainly seem to be in the pockets of the local developers. In one case that comes from the horses mouth in the shape of a councillor I know well … who would normally be a solid Tory voter! In the other case the council has gone bust due to their horrendous property developments.
I’ll defer to PSR for a wider picture.
Hazel,
The problem is not developers. I know as I work for a US developer in design-build development & construction. The problem is the lack of “social” housing in the UK and lack of “public” housing in the US (The two are not the same).
With respects to affordable housing, defined as 80% of market rate in the US, this type of housing cannot come to fruition without government subsidies or a public-private partnership scheme. Developers cannot invest money to develop housing then sell homes at a loss or rent homes at a loss in a 100% private market
See also:
https://theconversation.com/how-big-uk-housebuilders-have-remained-profitable-without-meeting-housing-supply-targets-215757?utm_medium=email&utm_campaign=Latest%20from%20The%20Conversation%20for%20November%2029%202023%20-%202808028428&utm_content=Latest%20from%20The%20Conversation%20for%20November%2029%202023%20-%202808028428+CID_3db314de690f2a69d5bc57967e15c1c1&utm_source=campaign_monitor_uk&utm_term=How%20big%20UK%20housebuilders%20have%20remained%20profitable%20without%20meeting%20housing%20supply%20targets
Follow the money.
Looks like rising interest rates force landlords to sell, enabling property to be bought more cheaply.
On average down £18,000 right now.
BUT there are few buyers. That is why.
Michael Gove, testifying at the Covid Inquiry has described the Cabinet Office, for which he had responsibility as Chancellor of the Duchy of Lancaster, as a ‘Mary Poppins bag’; neatly encapsulating the nature of our dysfunctional method of government. The Covid Inquiry has the side-effect of blowing apart the mythologies of our decrepit constitution, and functional government. The need for root an branch reform of the constitution is now overdue.
Gove, of course uses his standard technique of exculpatory explanation in interviews for many years. He began with an apology to the victims of Covid; but then spent his time fencing with Hugo Keith, with that smooth, unruffled delivery, and always somehow excusing himself. He has used the same technique in interviews for years. He has all the answers, but is never responsible for failure. Here is how it works. He begins an answer to a challenging question by saying he will not (for example), hide behind the Departmental responsibility of the Department of Health; then spends his time deconstructing the question, in order to pass much of the responsibility back to the Department. Now you see him, front and centre; now you don’t: the Cabinet Pimpernel.
Spot on
Keith seems to be getting to him on the fact that there was no plan. He cannot answer that properly.
Yes, Keith has actually produced a specific acknowledgement of Gove failure, over timing. What is less clear is why he resisted the non-Government evidence so long (Keith focused on measures taken in March, 2020 then within 3 says, rejected it all for rapid action before the evidence they had been measuring). Gove glosses over the point, but what Keith does not pursue is the parallel world; the world of the slippery politician, the world of public opinion and the media agenda. I hypothesise that the rapid change was not just the sudden recognition of the ‘exponential virus r-rate’ problem, but a perceived political reaction of the public, already convinced independent of government that severe action needed to be taken, for the sake of the public.
Here is the problem with the dotty ‘libertarianism’ of the goves and Johnsons. When you are faced with a real crisis and need people of mettle, people who do not panic, to follow the public’s lead (they are not taking the decisions for their security), you need a Carnot and an administration that to match. What we have are the slippery Goves, the eyes always hovering around the fire exit. This was seen after Keith pointed to Gove’s excoriatingly waspish private WhatsApp messages with Cummings on the failure of Government to take decisive action; followed by Gove chairing a Cobra meeting and, as Keith pointed out, failing to deliver any indication of his commitment to action, at the moment desperate measures, and leadership was needed. Gover replied with the smooth and unctuous delivery of the practiced functionary; his job chairing the Cobra meeting was to act as an impartial moderator. When you need a Carnot, and what you have is Gove or Johnson; cometh neither man nor hour.
In the final part of Gove’s evidence I think every single counsel found his answers to be intended, at best to run down the clock, or to use the politicians’s evasive device; to answer his own question rather than that he had been asked; but more important it became increasingly evident that in his approach to the Devolved Administrations, it became clear that wherever a Devolved Administration Minister was opportunely instanced; to politicise their activities (using his standard practice of making clear before he politicised his answer, that this was what he nobly refused to do); but when confronted by his own 21st July, 2020 Cabinet paper ‘The State of the Union’ that effectively expressed a plan to politicise the Covid responses of central Government; because the Devolved Administrations were regarded as being more effective. when confronted with the evidence; the ‘smoking gun’, Gove affably and smoothly reverted to classic Govism Plan A; deny he has done, precisely what is quite obvious he has actually done. His testimony was an act of deflection; to use naval terminology, a masterclass in evasion through ‘making smoke’.
He was clearly the most devious and difficult witness the various Counsels used in the Inquiry have had to deal with, at least that I have seen; and he successfully muddied and politicised the atmosphere sufficiently by the close, to produce an assurance from the Chair that she had not drawn any conclusions in the Inquiry from the evidence to date.
Gove is a reminder to us all that we have extensively allowed the wrong people to rise to senior positions in Government and wreak havoc, not just with Government, but the administration of good government, failed the people of Britain, and brought us all to the abject state we are now in.
Gove is totally loathsome.
Had to go out at 2pm so missed this afternoon’s ‘performance’, but how can Gove pretend that he was not part of the government?
He should end up in court for misconduct in public office, along with Johnson, Cummings and Hancock. That’s the title of the People’s Covid Inquiry report. To chair all those meetings and then wash his hands of what was happening is completely immoral.
To actually look at what was happening in Sweden but not in Scotland for best practice is also immoral.
[…] What sort of conspiracy against the people of this country is going on? Richard Murphy. It’s called rentierism. […]
I wonder if there is anybody in Labour who will see this as an opportunity to take rental properties back into public housing.
Some hope! FAR to Socialist for Starmer.
1) I estimate the number of households in the UK is rising at around 500,000 per annum
2) I estimate the number of new homes is rising at around 100,000 per annum
3) Almost all the “free float” of homes has been consumed, even in towns that have lost their economic role. e.g. mining towns. (Derelict and semi-derelict homes, marginal hotels, multiple occupancy hostels etc)
4) Serco and other govt sponsored services are offering 110% of local rates to property owners on a 7 year lease. They in turn are letting these homes to various emergency homeless people and getting paid by the govt 120%. ( I’ve been offered this on properties I own)
While 1,2 and 3 should be “fixed in a free market” With planning and various other market failures this isn’t happening
4) Is more worrying, it locks in continuous rent inflation
You cite nothing
That means your claims lack credibility
It would help to know the sources for all of your estimates?
1) The last census said there were 24,782,80 households in the UK in 2021, up from from 23,366,044 in 2011.
Divided by ten the increase is 141,675.6 households per year.
2) New build completions in 2021 were 181,900.
They have since fallen slightly to 174,600 in the year 2022-23.
3) I am not sure what is meant by ‘the “free float” of homes’ or what properties that term would include. However, the The Department for Levelling Up, Housing and Communities says that in 2023 there were 676,304 homes in England alone recorded as empty for council tax purposes. (I do not have a number for the UK as a whole).
248,149 homes were classed as ‘long-term vacant’ properties (vacant for more than six months).
The campaign group ‘Action for Empty Homes’ claims that in addition to the 248,149 long term vacant residential properties, there are 200,000 residential properties in England that are council tax exempt that are empty. Homes that are council tax exempt as long as they stay empty include the home of someone who’s moved into a care home or hospital, homes that have been repossessed, properties that cannot be lived in by law, for example if they’re derelict, and properties that are empty because they’ve been compulsory purchased.
4) I can’t comment on.
24,782,80 ought to be 24,782,800, which gives the correct increase of just over 1.4 million extra households in ten years. Statistic is for England and Wales only.
The OP’s suggested 500,000 annual increase would see us reach 1.4 million in just under 3 years, rather than 10 years. I hope it is obvious from that how preposterous the number suggested is.
https://www.housingtoday.co.uk/news/uk-needs-to-build-half-a-million-homes-a-year-to-meet-record-net-migration-says-think-tank/5126576.article#:~:text=New%20figures%20released%20on%20Friday,annual%20average%20in%20the%202010s.
This is an interesting idea.
https://www.theguardian.com/commentisfree/2023/nov/28/building-houses-britain-golf-courses-makes-sense
I agree
First of all, no one needs to defer to me about anything on this excellent blog!
All I would say about the increase in private sector rents is that you have to remember that ‘affordable rent’ in the social housing sector is set at 80 per cent of those market rents, so there is drag effect on even supposedly affordable housing by the private sector.
I recently tried to set a rent for a six bed affordable home using a market rent comparator, and my only comparator was a six bed house used for student let’s. Eighty per cent of the student let broke every ceiling set by government on social landlord rent!! I could not use it.
The other thing happening is that developers are now flocking to local authorities as the buyer of last resort for their homes since interest rates went up and residential sales dried up. So this is not bad news as a new supply of affordable housing is coming into play. Our only worry about these however will be over the quality of the end product, which can vary wildly from developer to developer.
So, everyone seems to be catching collateral damage from the governments’ inability to control the BoE – developers, tenants in both sectors.
Rent rises in the public sector will help councils and housing associations pay down their development loans. But it will be tenants essentially paying more serving to illustrate what is simply underinvestment by the state in affordable housing that has gone on for too long.
With the continuation of the bedroom tax and reductions in the housing portion of universal credit, the hardship is unjustifiable in my view.
Current policies seem to have completely decoupled from reality.
The housing morass has become something more akin to a housing labyrinth populated by what can only be described as dead ends.
Thanks PSR – very helpful.
The behaviour of developers and builders and the quality of what they build does seem to be a massive issue. With the governments answer seeming to be to ‘relax planning’ and allow developers free reign over what and where they build.
The whole sector seems overdue for a massive shake up and re-regulation as it is not serving the country’s interests. A bit like finance – both sectors being big Tory donors and closely linked.