Rent rises will be overtaken by wage growth later this year for the first time in at least four years, according to the latest predictions by LSL Property services.Analysis by LSL Property Services has shown that 2014 is set for rent rises of 1.7 per cent over the course of twelve months and average earnings growth of 2.2 per cent over the same period. By July earnings are expected to match annual rent rises, at 1.6 per cent on a seasonally adjusted basis. Over the course of 2013 average earnings increased by 1.1 per cent, while rents rose 1.6 per cent on the same seasonally adjusted basis.
Previously, rents had outpaced wages more than twice over – in 2012 rents rose by 3.2 per cent over the course of twelve months while average regular earnings grew by just 1.3 per cent in the same period. The cross-over of earnings growth and rent rises could happen as soon as April if wages pick up more quickly than in central forecasts. At the very latest, monthly earnings are expected to be rising more quickly than residential rents by December 2014. The last time rents rose more slowly than earnings on the same twelve month seasonally adjusted basis was in April 2010. David Brown, commercial director of LSL Property Services, believes that the longest recession in living memory has been banished to the history books. And this year the squeeze on living standards is finally abating too. “Households have withstood half a decade of bombardment from weak earnings, inflation – and a general spectre of gloom.
We’re still some way from the finish line, but for now things can only get better. As the economic recovery takes hold, there will be plenty of surprises and stumbling blocks. But the cost of rented accommodation is growing at a sustainable rate. The last time rents were rising more slowly than wages was four years ago – and that was only due to a rapid dip in rents following the collapse of purchase prices. Today we are in a very different situation. The private rented sector is now powered by waves of investment from landlords and a rejuvenated financial system. Meanwhile every sector of the economy – including construction – appears to be creating jobs.” Disposable income is expected to rise in line with falling rents as a proportion of earnings. However, when adjusted for inflation the improvement will be more gradual. As of January, the average earner living in privately rented accommodation currently has £822 per month remaining after paying tax and rent.
Reflecting the squeeze on living standards in the intervening years, this is 6 per cent less than the peak of £874 in such monthly disposable income seen in September 2009, when measured in January 2014 consumer prices. However, the current level of such remaining income is already 0.8 per cent higher than the record low seen in April 2013, when this stood at £815 per month. Moreover, by this measure the level of disposable income for those in the private rented sector is expected to reach £832 per month by the end of 2014, before growing to £844 in December 2015 and £854 by the end of 2016 (all at January 2014 prices). Trends in the relationship between rents and earnings are consistent with recent data from the LSL Tenant Arrears Tracker – which shows levels of severe tenant arrears down significantly on an annual basis. As of Q1 2014 the number of UK households owing more than two months rent is 35 per cent lower than in the same period last year, according to the LSL Arrears Tracker. Such tenants in serious rental arrears now represent just 1.4 per cent of all tenancies in the UK, down from 2.3 per cent of all tenancies one year ago.
Meanwhile, according to LSL’s latest Buy-to-Let Index, overall tenant arrears have fallen since December to stand at the second lowest level on record, with only 6.9 per cent of all rent late or unpaid as of February . This compares with 7.4 per cent of all rent in the previous month and 9.7 per cent in December 2013. Mr Brown added: “For the first time in half a decade people up and down the UK are starting to feel truly optimistic about their finances. And for those living in the private rented sector, that means paying the rent is finally becoming easier. That said, there is certainly a long way still to go. And just because we’re going in the right direction, it doesn’t mean we’re already there. Landlords should stay in contact with their tenants on a regular basis. And in the unlikely situation that payment of rent will be late, both parties should be aware of all the options as early as possible. However, such a dramatic fall in the level of severe arrears means there are far fewer tenants struggling with their finances on such a fundamental basis. If the risk of unemployment can stay low and wages can fulfil their expected growth, tenant finances will almost certainly continue to improve as we move through 2014.”