Home Energy assets UK landowners hold all the cards – so bad luck for others | Philippe Inman

UK landowners hold all the cards – so bad luck for others | Philippe Inman

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With rising gas and electricity prices taking center stage after Ofgem set the energy price cap in October at £3,549, it is interesting to see how others sectors of the economy reacted little.

An abundant supply of cheap energy has underpinned every period of national income growth for the past 70 years and the prospect that what was once ubiquitous and low cost will become a major financial burden is one of the main reasons why many economists predict that a recession will begin this fall and throughout next year.

For the moment, these same forecasters do not expect the fall in GDP to be very deep. And that’s because so many other elements that underpin economic activity are expected to remain in poor health.

One of the pillars of growth is the real estate market. House price increases may have slowed in many areas, but they remain positive and continue to drive values ​​in coastal hotspots and desirable cities and suburbs to record highs.

Residential rents are also rising after a brief dip during the pandemic. Across the country, leasing agents are so busy that their rising commissions threaten to match the growth in mega-bonuses paid to investment bankers and private equity executives.

Despite talk of leveling, London’s rental market has seen monthly rates soar into double digits to cement the capital as a top destination for young professionals. In July, as much of the country worried about utility bills crippling their personal finances, rents in the capital rose 23% year on year, according to property agency Foxtons, which says the number of tenants competing for each property increased by 27% over the same period.

The national average increase in rents charged by landlords was 11.8%, says online agency Rightmove, pushing ‘asking rents’ outside London to another new record, of £1,126 per month. In London, that monthly figure has risen to £2,257, with annual growth in asking prices now exceeding 15% in the capital, the highest annual rate on record across any region, according to Rightmove’s calculation.

Renters regularly say that there are 10 or 15 people showing up to view a property, such is the competition to get a house in London. Much the same is said in other parts of the country, where the rents may not be so high, but the competition is just as fierce.

One of the reasons for the sustained rise in rents is figures showing a 40% drop in the number of apartments and houses available for rent in the capital. The same decline can be seen in other regions and even more so in the number of real estate purchases since a high point last year. Home purchases have halved since the spring of 2021, when Rishi Sunak ended a temporary stamp duty reduction.

Landlords are able to play a sophisticated game to maximize the value of their assets: make them available to rent or buy when the price is right, and retire them when it falls below their expectations.

There was a time when real estate was seen as an illiquid market, based on assets that were difficult to buy and sell – and that’s still true when compared to stocks and shares. However, the level of sophistication in the private sector – and the dominance of private developers now that public and social housing are fixed, adding little more to the housing stock each year – means that prices can be kept high indefinitely. Only a rise in unemployment can call into question the plan of private landlords to maintain price growth and limit the potential fall in rental values.

So far, the job market has proven to be robust. And while a recession is likely to push more people out of work, current demand for homes to buy and rent will have to fall to affect prices. The Bank of England estimates that the unemployment rate will rise by around two percentage points over the next 18 months, from its current 40-year low of 3.8%.

Central bank officials are among the most pessimistic forecasters, but even this higher level of unemployment and their own interest rate increases should not scare the market.

Surveyed by Rightmove in June, more owners (34%) said they planned to expand their portfolios over the next 12 months than they said they would shrink (11%) and he revised its forecast growth in asking rents of 5% to 8%.

Like the energy market, the real estate market is now well and truly rigged in favor of landlords and against their customers. Average monthly rents are now 40% higher than 10 years ago. After 12 years of Conservative rule, this is yet another economic statistic that puts the government to shame.