November 19, 2010 • 5:56 pm

“Rents generally have fallen by 5 per cent since the local housing allowance came in, but where there have been local housing allowace rents…they have risen by 3%” Grant Shapps, Housing Minister, Today Programme, 18 November 2010

Background

Serious questions have been raised as to the nature of this claim, by the diligent work of Inside Housing magazine, that was subsequently picked up by The Independent this morning.

The reason for such doubts is the sourcing of the private sector rent figures from FindaProperty.com, as opposed to the Office for National Statistics as originally claimed in the House of Commons by Iain Duncan Smith.

Using a statistic derived in this way has lead to accusations that the comparison isn’t a fair one, as the figures used are for advertised rents, rather than the rents that people end up paying.

This being the case, it is worth examining just how this could impact on the figures.

Analysis

When we contacted findaproperty.com to obtain a response to the new-found fame for their figures, they were very keen to defend them.

Research Director Andrew Smith told us: “This index, which is publicly available to download as a PDF from our site at FindaProperty.com, is a rich source of data examining asking rental price fluctuations, the number of properties available to rent nationally and levels of yields – all broken down nationally, regionally, by key cities and by London boroughs.

“It is based on our own large sample of approximately 450,000 rental and sales properties, as well as data from Calnea Analytics, who work very closely with the Land Registry, and uniquely provides data on the private rental market rather than the social housing one, which is gathered nationally by the Office of National Statistics.”

However while there is nothing to suggest problems with the data from FindaProperty.com, the concerns raised are about its use as an indicator of average rents. As Mr Smith makes clear the survey looks at asking rents as opposed to actual rents.

Because of this the information could run into problems when used in the way ministers have.

This is because the difference between the two could potentially be very significant, with market conditions seeing actual rents turning out above or below advertised rents, as Ian Potter, Operations Manager for the Association of Retail Letting Agents told us:

“The figures for what an advertised rent is and what is an achieved rent vary greatly across different parts of the market and different areas of a city.

“Some will achieve the advertised rent but looking at the figures for last year in lots of the parts of the country the advertised rent wouldn’t be achieved. This year the advertised rents would be being achieved.

“Asking rents are not necessarily what rent is achieved – particularly in some areas, such as parts of London, where demand is so strong that tenancies are being set on sealed bids.”

Similarly, if tenants remain in a property long term the rent they pay to a landlord may not necessarily rise in the same way it would if the property were being advertised for on the market for prospective new tenants, as Chris Norris of the National Landlords Association explained:

“It is unusual for landlords and tenants who have a good relationship to continue year-on-year to change rents in line with average changes in asking prices, so average rent for existing tenants might be quite a long way out from average asking rent.”

This could potentially see rents held slightly lower while the same tenant remained in a property, but once these tenants left, the rent for the property changed significantly to be brought back into line with changes in the market. Such behaviour would have knock on effects for the difference between figures for advertised rents and average rents.

Given such problems with taking asking prices as a guide for private sector rents, the lack of an authoritative guide to how private sector rents excluding local housing allowance have changed is more keenly felt.

Indeed we were told by Ian Potter that no formal rent indexation for achieved rents exists. While there is a lot of information on rents provided in the Survey of English Housing, there is a significant time lag in the availability of the data.

Likewise while the Valuations Agency Office was suggested as another source of the figures, we were left disappointed when we called to try and track some data down. Somewhat ironically, they suggested we tried the Department for Work and Pensions.

Conclusion

Knocking down the claim used by both Grant Shapps and Iain Duncan Smith on account of their figures is one thing, providing an alternative, more accurate guide to actual rents paid has so far proved problematic.

The problem of using advertised rents is clear, therefore the claim should be treated with caution, but to gauge any degree of inaccuracy seems at present impossible.

Indeed it has already been argued that simply by comparing private rents with housing benefit rents in a way that seems to show divergent trends may not be particularly illustrative, given that the benefit levels are set in relation to market levels, and any different trends would in a large part be explained by a time lag between market levels and those set for benefits.

As Ian Fletcher of the British Property Federation explained: “You have to take into account the lag. Yes, to some extent it is right when ministers say that rents were falling but that’s no longer the case.

“The whole point about the way the Valuation Office works, and the housing benefit system works, is that it is based on market rents collected by rent officers up and down the country. Long-term misalignment with what the market is paying therefore can’t occur. If market rents fall so will LHA payments eventually – that is inescapable.”

Given the degree of scrutiny this claim has been subjected to, it seems reasonable that ministers should cease to use it in future.

The Department for Work and Pensions have already stated that a correction has been issued for Iain Duncan Smith’s claim in Parliament. When this is published Full Fact will be checking to make sure inaccuracies have been completely dealt with.

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