Research: New index can track local rents

The Office for National Statistics (ONS) is taking a new approach to measuring rents and rent increases in the Private Rented Sector (PRS). Here Research Manager Nick Clay looks at what the new measures are telling us.

A new data series – the Price Index of Private Rents (PIPR) is part of an effort by the UK’s statistical authority to bring together house prices and rents into a single source. The new PIPR is said by the ONS to “measure rent price changes of the entire privately-rented stock”. 

The new index is now able to track rents and rent growth for local authority areas (follow this link to look at the data for your local area) although the ONS has warned when analysing the data at a local level it is better to look at long term trends rather than monthly movements. 

We know that the PRS faces rising tenant demand and declining volumes of new landlord instructions. We also know (and have reported in our Landlord Confidence Index) that fewer landlords are able to freeze rents in the face of rising interest rates and inflation squeezing up costs.  

It is no surprise therefore that the index has recently risen rapidly. Annual growth in rents began to move ahead of inflation in June 2023. Prior to this date, when the wider inflation measure was 8.5-9.5%pa, rental growth was almost half.  

In January the new PIPR reported rental price inflation was 8.5% whilst the previous measure – the Index of Private Housing Rental Prices (IPHRP) - was 6.2%. At the same time the government’s preferred measure of inflation across the whole economy – the Consumer Price Index, including owner occupiers housing costs, (CPIH) - was 4.2%pa.  

January was the final month in which both the PIPR and IPHRP were reported. In February the PIPR reported annual rental growth of 9% per annum. There will be no more IPHRP-based estimates of rental price inflation. 

Looking over the long term, rather than 12month periods as the attached chart does, rental price growth (on either measure) has lagged inflation – at least until this month. 

Given current trends in the PRS – and despite the NRLA detecting signs of stability returning - it may still be six months before rental prices on the new PIPR index begin to level off.