£
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The long view
Our long retrospective on house price
growth shows how it has swung between
highs of +26% and lows of -24% in
response to a succession of economic
shocks, even after adjusting for inflation.
Any connection between house prices
and earnings has been progressively
weakened as homeowners have
accumulated equity, and central banks
have managed the cost of borrowing.
Rental markets tend to self-correct far
more quickly than sales markets under
normal circumstances. The reason for this
is that renters have the opportunity to
reconsider their living choices every
12 months or so. If rents begin to move
out of reach in relation to earnings, a
renter can choose to relocate somewhere
cheaper, rent somewhere smaller, or
share with more people. This is especially
true of the young footloose renters who
make up a significant cohort of the
London market.
Looking ahead
The impact of the post-Covid return to the
city has been acute. While history suggests
that the rental market will correct to
earnings, the underlying supply/demand
balance could be squeezed by an influx of
overseas students and corporates who
aren't reliant on personal earnings.
London Lettings Report Autumn/Winter 2022 | The market in context 3
LONDON'S RENTAL STABILITY
0%
10%
20%
30%
-20%
-10%
-30%
Periods of economic uncertainty
Rents House prices
Earnings (proxy for rents)
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
OIL PRICE
SHOCK
WINTER OF
DISCONTENT
EARLY 90S/BLACK
WEDNESDAY
GLOBAL FINANCIAL
CRISIS
BREXIT
GLOBAL
PANDEMIC
• Unemployment rose to 12%
• Inflation peaked at 18%
• Interest rates peaked at 17%
• Unemployment rose to 11%
• Inflation peaked at 8.4%
• Interest rates peaked at 14.9%
• Fall in GDP -5.9% peak to trough
• Interest rates dropped to 0.5%
• Inflation peaked at 4.8%
• Wages fell 6%, quickly rebounded
• Fall in GDP -22% peak to trough
• Interest rates dropped to 0.1%
• Inflation fell to 0.5%
• Rents fell 17%, rebounded to
pre-Pandemic peak in 10 months
Foxtons, Nationwide, ONS, Bank of England (all measures adjusted for inflation)
OVER THE LONG TERM,
RENTAL GROWTH LINES
UP WITH EARNINGS
GROWTH, UNLESS
THERE IS A SIGNIFICANT
REDUCTION IN HOUSING
STOCK TO RENT, OR A
SUBSTANTIAL SOURCE
OF NEW DEMAND