The cost of renting privately in London

I was reading an article (Rents shock for East End Families facing three-times average rises) in the East London Advertiser on the soaring cost of renting, which itself was based on a report by shelter (here) and I was curious where the figures came from and whether the reporting could have captured a more nuanced analysis.

I found that whilst average rents are increasing, the private rental market is two-speed, with large increases in rent for both the cheapest and the most expensive properties, but not the 'average' property, however the quality of the data doesn't allow us to make any definite findings and the article by the ELA is not as convincing once one understands the limitations of using this data on a local level.

What we can say:

• Saying the average rent went up by 6% is meaningless
• We don't have long term data so we don't know if this is a blip
• We aren't comparing properties consistently or even referring to the same population
• The median rental price hasn't increased significantly other than for single rooms and properties with 4+ beds
• The rent charged for the cheapest and the most expensive properties are increasing in price more quickly and at quite high rates
• The 'mean' rental payment is greater than the median, indicating that the 'average' rental price paid is skewed by the most expensive rents.
• All of the above is dependent on the robustness of the VOA's sampling methdology at a local authority level.

Analysis

We know the 'average' increased by 6%, but what about other measures? The median is largely unchanged except for the very largest and individual rooms, though the two might be linked (house shares presumably are more economically viable in larger properties), though of course it's not possible to say. So we know that for everyone other than those living in large houses or renting a single room, the man in the middle isn't experiencing an increase in their rent.

However, for studios and 1,2 and 3 bedroom properties, the lower quartile (LQ) increased in value at a greater rate than the median, indicating that those who are in the cheapest properties are experiencing rent increases.

Looking at the movement for the upper quartile (UQ), we again see that with the exception of 3+bed properties, the increase in the rent paid by UQ properties is increasing faster than the median.

What this suggests is that the cheapest properties and the most expensive properties are both experiencing greater than 'average' increases in rent. The trend in rooms is very interesting, as the greatest movement in price is in the upper quartile, which makes me wonder if people who might otherwise rent a studio or single bed property are switching demand to roomshares, which is pulling up the rent for 'premium' rooms.

TABLE 1: Summary

	Mean	LQ	MEDIAN	UQ
Room	10%	9%	13%	17%
Studio	9%	8%	0%	9%
1 Bed	5%	4%	2%	6%
2 Bed	8%	7%	3%	8%
3 Bed	-1%	6%	0%	-6%
4+ Bed	11%	7%	10%	9%

Looking at TABLE 2, which shows the mean (or 'average') we can see that whilst the overall average rent has gone up by 6 per cent,  there is quite a lot of variation by type of property. Indeed, for 3 bed properties (the sort of place a hardworking family might want to live) the average rent in this survey fell. However, it is not clear if there is something different about the market for 3 bed properties or if the data isn't strong enough.

TABLE 2: MEAN MONTHLY RENT (£)

	2011	2012	Change
Room	480	529	10.2%
Studio	992	1,084	9.3%
1 Bed	1,218	1,278	4.9%
2 Bed	1,537	1,658	7.9%
3 Bed	1,903	1,878	-1.3%
4+ Bed	2,166	2,406	11.1%
All	1,287	1,366	6.2%

TABLE 3: LOWER QUARTILE MONTHLY RENT (£)

	2011	2012	Change
Room	400	435	8.7%
Studio	802	867	8.1%
1 Bed	1,018	1,062	4.3%
2 Bed	1,257	1,343	6.9%
3 Bed	1,430	1,517	6.1%
4+ Bed	1,820	1,950	7.1%
All	1,018	975	-4.3%

TABLE 4: MEDIAN MONTHLY RENT (£)

	2011	2012	Change
Room	459	520	13.2%
Studio	997	997	0.0%
1 Bed	1,170	1,196	2.2%
2 Bed	1,473	1,517	3.0%
3 Bed	1,733	1,733	0.0%
4+ Bed	2,167	2,383	10.0%
All	1,300	1,322	1.7%

TABLE 5: UPPER QUARTILE MONTHLY RENT (£)

	2011	2012	Change
Room	520	606	16.5%
Studio	1,192	1,300	9.1%
1 Bed	1,387	1,473	6.2%
2 Bed	1,712	1,842	7.6%
3 Bed	2,145	2,015	-6.1%
4+ Bed	2,383	2,600	9.1%
All	1,603	1,668	4.0%

Caveat on data

The data that the anaysis is based on has some quite significant weaknesses. It is based on a survey undertaken by the Valuation Office Agency, a government body; but the survey doesn't track properties year-on-year, so the utility of the results are dependent on the sample being representative of the housing stock year-on-year.

As an indication that the selection criteria appear not to target a given location proportionately we can look at the number of properties surveyed in different areas and how these changed over time; for example, 42 per cent fewer properties in LBTH were surveyed in 2012 compared to 2011 (1,628 vs 2,787), in contrast Lewisham saw a 5 per cent increase and in London as a whole, the dip was only 18 per cent, indicating that the likelihood of a given property being surveyed is not equal.

Another issue is that the methodology includes houses and flats in the same bracket, so if the mix changes, the results will be skewed.

The Shelter report openly states that it chooses not to use the median as data 'clusters' around it. I personally find the median a very useful figure when performing analysis, because unlike the mean/average, it is based in reality - it is the middle value and gives an idea about how a distribution is changing. If all a large number of very fancy flats were built and attracted a large rent, they would incresase the average rent, but, the average tenant wouldn't necessarily be paying any more money, so we need to look at a number of statistics.