I was reading the Sunday Papers and when reading the financial pages, it was announced the UK inflation had increased to its highest level in a year. Inflation, as calculated by the Government’s Consumer Prices Index, rose by 1.6% over the last 12 months. The report said it had been ‘boosted by rising cost of transport and housing and utilities amid a weaker pound’.
So what does this mean for the Edinburgh property market ... especially the tenants?
In its latest analysis, the Office of National Statistics stated average wages rose by 2.8% year on year, so when adjusted for inflation, Edinburgh people are 1.2% better off in ‘real’ terms.
Great news for homeowners, as their mortgage rates are at their lowest ever levels and their spending power is increasing, but the news is not so good for tenants.
The average rent that Edinburgh tenants have to pay for their Private Rental Properties in Edinburgh (ie not Housing Association or Council tenants) rose by 3.6% throughout 2016 outstripping the wage growth. 2016 wasn’t a one off either. In 2014 and 2015, rents in Edinburgh rose by 6.8% and 5.7% respectively whereas salaries only rose by 2.2% and 1.9% respectively.
… and it must be noted, the private rents Edinburgh tenants have had to pay for a Edinburgh property for a while now as since 2007 property prices are only 17.2% higher, not even keeping up with inflation, which over the same time frame, rose at 25.3% (although salaries were only 22.0% higher over the same time period).]
More and more, talking to 20 and 30 somethings who rent – it’s a choice. Gone are the days where owning your own property was a guaranteed path to wealth, affluence and prosperity.
I know I keep mentioning Europe, but some of the highest levels of home ownership are in Romania at 96.1%, Hungary at 88.2% and Latvia at 80.9% (none of them European economic dynamos) and even West European countries like Spain at 78.8% and Greece at 74% (and we know both of those countries are on their knees, riddled with national debt and massive youth unemployment).
At the other end of the scale, whilst we in the UK stand at 64.8% homeownership, in Europe’s powerhouses, only 52.5% of Germans own a home and only 44% of Swiss people are homeowners. Looks like eating chocolate, sauerkraut, renting and good economic performance go hand in hand. Yet, joking aside, home ownership has not always been the rule in the UK. In 1918, only 23% of people were homeowners, with no council housing, meaning in fact, 77% were tenants.
Tenants have a choice, the flexibility to move and they don’t have massive bills when the boiler blows up, it’s a choice. Edinburgh rents are growing, but not as much as incomes. To buy or not to buy is an enormously difficult decision. So buying a Edinburgh home is a dream for the majority of the 20 and 30 something’s of Edinburgh have, it might not leave them better off in the long run and it isn’t necessarily the best option for everyone.
That is why, demand for renting is only going in one direction – upwards.