As rising gas and electricity prices take centre stage after Ofgem set the October energy price cap at £3,549, it is interesting to see how little other parts of the economy have reacted.
A plentiful supply of cheap energy has underpinned every period of growth in national income over the past 70 years and the prospect of what was once ubiquitous and low cost becoming a major financial burden is one of the main reasons many economists predict that a recession will begin this autumn and run throughout next year.
At the moment these same forecasters don’t envisage the drop in GDP being very deep. And that’s because much else that underpins economic activity is expected to remain in rude health.
One of the pillars holding up growth is the property market. House price increases may have slowed in many areas, but they remain positive and continue to drive up values in coastal hotspots and desirable towns and suburbs to record highs.
Rents in the residential sector are also growing after a brief dip during the pandemic. Across the country, letting agents are so busy that their soaring commissions threaten to match the growth in mega-bonuses paid to investment bankers and private equity executives.
Despite talk of levelling up, London’s rental market has seen monthly rates soar by double digits to cement the capital as the go-to destination for young professionals. In July, while much of the nation was fretting about utility bills crippling their personal finances, rents in the capital rose 23% year on year, according to estate agency Foxtons, which says the number of renters competing for every property increased 27% over the same period.
The national average rise in rents demanded by landlords was 11.8%, says online agency Rightmove, pushing “asking rents” outside London to another new record, of £1,126 a month. In London, that monthly figure rose to £2,257, with annual growth in asking prices now exceeding 15% across the capital, the highest ever annual rate of any region, by Rightmove’s calculation.
Renters regularly say there are 10 or 15 people turning up to view a property, such is the competition to secure a home in London. Much the same is said in other parts of the country, where rents may not be so high, but competition is equally fierce.
One reason for the sustained rise in rents can be found in figures showing a 40% fall in the number of flats and houses available to rent in the capital. The same fall can be seen in other regions and to an even greater extent in the number of property purchases since a high point last year. House purchases have halved since spring 2021, when Rishi Sunak ended a temporary cut in stamp duty.
Property owners are in a position to play a sophisticated game to maximise the value of their assets: making them available for rent or purchase when the price is right, and withdrawing them when it falls below their expectations.
There was a time when property was considered an illiquid market, based on assets that were difficult to buy and sell – and that is still true when compared with stocks and shares. However, the level of sophistication in the private sector – and the dominance of private developers now that public and social housing is fixed, adding little extra to the housing stock each year – means prices can be kept high indefinitely. Only a rise in unemployment can spoil private owners’ plan of maintaining price growth and limiting the potential for rental values to fall.
So far the jobs market has proved robust. And while a recession is likely to increase the number of people out of work, the current demand for homes both to purchase and to rent will need to tumble to affect prices. The Bank of England believes the rate of unemployment will edge up about two percentage points over the next 18 months, from its current 40-year low of 3.8%.
Officials at the central bank are among the more pessimistic forecasters, but even this higher level of joblessness, and their own interest rate increases, are unlikely to spook the market.
When asked by Rightmove in June, more landlords (34%) said they were planning to expand their portfolios over the next 12 months than said they would reduce them (11%) and it revised its forecast for growth in asking rents from 5% to 8%.
Like the energy market, the property market is now well and truly rigged in favour of the owners and against their customers. Average monthly rents are now 40% higher than they were 10 years ago. After 12 years of Tory rule, it is yet another economic statistic that brings shame on the government.
