Property prices and rental values are skyrocketing
Energy bills are driving up the cost of living. But property prices are also rising fast — which might be good news for owners, but it’s a disaster for tenants. Data from the Rightmove Rental Price Tracker shows that private rents in Britain are rising “at the fastest rate on record”. Outside London, they are nearly 10% higher than last year.
Rental values are spiking in America too. According to Wolf Richter’s Wolf Street blog, “rents for single-family houses and condos on the rental market exploded by 12% year-over-year in the US.”
Given the impact of Covid on household finances there’s a question as to how tenants are managing to pay so much extra. Part of the answer is that increasing numbers of them aren’t. In a separate post, Richter notes that the percentage of tenants making rental payments on time has deteriorated — from nearly 96% just before the pandemic to 92% now.
The chart also records the impact of the $1,400 stimulus cheques sent out last year by the American government to millions of qualifying individuals. It appears that the ‘free’ money helped a higher proportion of tenants to make rent. However, because this was a one-off payment, the effect was temporary.
This is just one illustration of a wider problem faced by governments as they’ve tried to revive their economies. Whether it’s a short-term measure like a stimulus cheque or a long-term investment in infrastructure, a significant proportion of any boost to growth will be captured by landlords in the form of higher rents.
Given constraints on new supply — and the sheer hassle of moving — rental values tend to be determined by the point at which they absolutely force people out of their homes, or businesses out of their premises. Throughout the pandemic, governments have tried to help cash-strapped households and businesses, but in the process they’ve increased the level of rent that the market can bear.
Is there anything that governments can do? Yes, many things. They can increase the supply of new homes and workplaces through planning reforms. They can provide social alternatives to the private rented sector. Rent controls are another possibility.
The simplest option, though, may be to hit the landlords with higher taxes. For a start, property is easy to tax because it can’t be hidden. Furthermore, with the market already paying what it can bear, the cost can’t be passed on to tenants. Finally, while most taxes disincentivise supply, what landlords deal in — i.e. land — continues to exist no matter how hard you tax it.