Londonland rents - the average

This London rent thing has been bugging me for a week or so. I was going to let it go, but last night þere was a piece on whatever BBC news program about gentrification in Brixton and how rising rents were forcing out the natives, so market traders were getting people buying fruit and veg like they used to in the old days.

Brixton

On the one hand I feel for the fruit and veg sellers, on the other hand (like Iron Man might say) businesses go out of business all the time, þere's no need to be a pussy about it. But with pieces on the BBC, something didn't feel right.

Rents going up, rich people moving in, the native population being forced out due to rising rents, that's the general line from the BBC.

Brixton is part of Lambeth.

According to figures scraped from rightmove.com average rents in Lambeth for two bedroom properties have fallen by about 3% between May 2012 and May 2013, from £1,745 to £1,695 per month for a two bedroom property. This is mainly because þere are around 17% more properties on the market þere, for two bedroom properties þere were 830 this time last year and þere are 970 this year.

Its possible that average rents in Brixton have risen, but in the rest of Lambeth have fallen even more so, so the borough average is down, but its unlikely. Likewise, its possible that average rents for properties with more or fewer than two bedrooms have risen disproportionately to two bedroom properties, but its unlikely. So either my figures are wrong or the figures the BBC used are wrong.

Falling rents

At this point, I'd like to veer off and discuss the nature of rents. For individuals, rents hardly ever come down, your landlord is only ever going to keep the rent you pay the same or they'll raise it. If for example their mortgage rate falls, they're not going to voluntarily pass the reduction on to their tenants. Pretty much the only occasion where an individual rent will fall is if the tenant has a change of circumstance: "sorry guv' I lost my job and the missus is up the duff, we're going to have to move out if you don't reduce the rent, an' we've always been such good tenants, and never caused no one no bother."

For properties, rents do come down, if they're sat empty on the market for a while the landlord might offer a lower rent, that is, if þere is no demand at one price point. Or if the property has turned crap, developed faults, got fucked up by the previous tenants or is in need of modernisation, the rent may fall, or if the area has become crap. But this only happens if the property is empty.

For average rents in a specific area, average rents could fall only if þere are a lot of empty properties on the market, or if new properties have been brought to market.

So if an an area is in decline, or if a lot of people for some reason have decided to invest selflessly creating in low value housing, for very low returns.

Anyhoo, with these points in mind, for the rest of the article when I refer to rents falling or rising, I mean in general, on average for two bedroom properties that are on the market and not secret.

I live in a nice flat in Walthamstow, it has two bedrooms and a garden and I pay £800 per month. The rent hasn't changed for three years, despite the average rising by £50.

LSL Property Services

Moving on. At the moment, whenever you search twitter for 'London rents' þere are dozens of people fretting about news articles that regurgitate a press release and paper by LSL Property Services, with a headline factoid about London rents increasing by 7% year on year.

This is at odds with the figures I scraped from Rightmove where London rents are up around 3%, broadly in line with inflation and also highly variable within the London boroughs. Some are down 3% some are up 7%, but broadly, they follow inflation.

I believe the methodology used by LSL and their consultants Wriglesworth, is to blame. We're looking at different things. Whilst I'm scraping the prices of every property listed on Rightmove for all of London, some 30,000 properties on the market, LSL use a sample of 18,000 properties from all over the UK with tenants currently paying rent.

Its like I said earlier about how my rent hasn't changed but the rental market in Walthamstow has gone way higher.

LSL split their sample of 18,000 properties into 11 regions in England and Wales which suggests a sample size of between 1,600 to 2,600 properties per region. For London this could amount to a sample of between 50 and 100 properties per borough, covering all property sizes, one bedroom, two bedroom and more.

Tower Hamlets has 3,000 two bedroom properties on the market, so maybe an order of magnitude more than that with sitting tenants which LSL are trying to model. I believe LSL's sample size is a bit small for the level of accuracy they proclaim. But hey, we're counting different things.

Maybe, like political polling companies, they're have a really well crafted representative sample of rental properties. Maybe

Still, their report on rents has been very successful in the media, with coverage in The Evening Standard, The Independent and the BBC.

A little too successful perhaps, its quite a specific report for a small niche, buy-to-let investors who want someone else to manage their property. The report is good for the sort of returns investor can hope to receive, and its good for whipping up hysteria about the market, less so for people looking to rent.

Average London rent

The other headline factoid in the LSL report is that 'average' rents in London have reached an all-time high of £1,110 per month. Maybe it is for the properties that they manage, but no explanation of what sort of properties that refers to, residential or industrial, how many bedrooms or whereabouts. For buy-to-let investors, the intended audience for the LSL it doesn't really matter, but for people looking to rent in London, its more significant.

Its misleading.

For people actually looking for somewhere to live, for somewhere to rent, the mean average two bedroom rent is £1,957 per month, the median two bedroom rent is about £1,925

For one bedroom flats, the mean average monthly rent is £1,617, the median is about £1,475.

As has been pointed out previously the spread of rents is a bit skewed, þere aren't many cheap places, but þere's no limit to how much you can pay.

Here's a chart showing the market profile in London for one- and two bedroom properties

Despite the high demand for cheap / affordable housing in London, the market seems unable to offer many two bedroom places below £1,000 a month.

Market distortions

It is my belief that Housing Benefit, in London, artificially distorts the market and provides a rent floor below which no properties are available at any standard, be they rat infested, moldy or just really small, all are available for £1,000 or more.

This means that anything not rat infested, moldy or really small is on the market for a lot more than £1,000.

I'm not sure how to demonstrate or prove this market distortion, but perhaps playing round with the data some more will help.

So, despite demand and all the bluster from politicians, the number of two bedroom properties on the market London for lets than £1,000 a month has fallen.