Interestingly, the rest of the economy has had little reaction to the rise in gas and electricity prices after Ofgem set the October energy price cap at £3,549.
Abundant supplies of cheap energy have underpinned every period of growth in national income over the past 70 years, and the prospect of once ubiquitous low-cost energy becoming a major fiscal burden is one of the main reasons many economists predict a recession will begin. One runs this fall and next year.
For now, these forecasters do not expect the decline in GDP to be very large. That’s because many other factors supporting economic activity are expected to remain healthy.
One of the pillars underpinning growth is the housing market. House price increases may have slowed in many areas, but they remain positive and continue to push values in coastal hotspots and desirable towns and suburbs to record highs.
Rents in the residential sector are also rising after a brief dip during the pandemic. Across the country, rental agents are so busy that their soaring commissions are likely to match the rise in huge bonuses paid to investment bankers and private equity executives.
Despite talk of an upgrade, monthly rents in London’s rental market are soaring by double digits, cementing London’s status as the destination of choice for young professionals. Rents in the capital rose 23 per cent year-on-year in July despite fears in much of the country that utility bills would dent their personal finances, according to real estate agency Foxtons, which said the number of tenants competing for each property was higher than the number of tenants competing for each property. It was up 27% in the same period last year. the same period.
The national average rent increase requested by landlords is 11.8%, Online Agency Rightmove says, pushing the “rent asking price” outside London to another new record at £1,126 a month. In London, the monthly figure rose to £2,257, with asking prices now rising by more than 15% a year across the capital, the highest annual growth rate of any region, according to Rightmove calculations.
Renters often say 10 or 15 people show up to see a property, and that’s the competition to buy in London. The situation is similar in the rest of the country, where rents may not be as high, but competition is just as fierce.
One reason why rents have continued to rise can be found in data showing a 40 per cent drop in the number of apartments and houses available for rent in the capital. Other regions saw the same decline, with home purchases falling more sharply since last year’s highs. Since spring 2021, Rishi Sunak ended a temporary cut in stamp duty and halved home purchases.
Owners can play a complex game to maximize the value of their assets: make them available for rent or purchase when the price is right, and reclaim them when the price is lower than they expected.
There was a time when real estate was considered an illiquid market, based on assets that were difficult to buy and sell – and that’s still true compared to stocks and stocks. However, the sophistication of the private sector – and the dominance of private developers after public and social housing is fixed, with little to no increase in housing stock each year – means prices can remain high indefinitely. Only a rise in unemployment will derail private landlords’ plans to maintain price growth and limit the potential for falling rental values.
The job market has proven strong so far. While a recession could increase job losses, current demand for both home buying and renting needs to fall to affect prices. The Bank of England sees the unemployment rate rising marginally by about 2 percentage points over the next 18 months from its current 40-year low of 3.8%.
Central bankers are among the more pessimistic forecasters, but even such high unemployment and their own rate hikes are unlikely to spook markets.
When Rightmove asked in June, more landlords (34%) said they planned to expand their portfolios in the next 12 months than those who said they would reduce their portfolios (11%), and raised its forecast for rent growth from 5% down to 8%.
Like the energy market, the real estate market is now truly rigged in favor of owners and against their customers. Average monthly rents are now 40% higher than 10 years ago. This is another economic statistic that puts the government to shame after 12 years of Conservative rule.
