Inflation, House Price Index and Rental Growth

Currently, we have the highest rate of inflation in 40 years, the highest base rate since January 2009, and the highest rate of taxation since the 1940s. It’s certainly a challenging economic climate, and yet property investment remains exceptionally rewarding.

The latest house price index from Rightmove notes that the average price of a property hit yet another market high this month, marking “a fifth consecutive record” in 2022. The rate of growth is slowing, as all common sense suggests that it must, but the combined returns from rents and capital growth still look comfortably able to outpace inflation. If we take Rightmove’s +9.7% as a fair reflection of house price growth, and Homelet’s recent figure of +10.6% as a good indicator of annual rental growth, then it seems that total returns are still far exceeding the 9.1% CPI inflation figure published by the ONS on 22 June.

It’s an argument that’s supported by recent data from the property portal Home, which reports that ongoing shortages in supply, low interest rates and high inflation have created some unprecedented conditions. The housing market “continues to hurtle along,” it says, adding that according to its own figures, annual UK rental growth now averages nearly +19%.

At a time when few other investment options look even remotely secure, it’s easy to see why property remains popular. Indeed, with costs rising for everyone, rent looks like it will be a more affordable option than buying for the time being, so demand should stay strong. Accordingly, investments in build-to-rent and buy-to-let both appear to be on the rise.

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