The economy, the property market and you

Fri 22 Jun 2018

We hear many statistics about the economy reported in the media; what’s happening to GDP, inflation, wages, jobs and, more recently, the success or failure of our high street and retail sales.

Rarely is it explained, however, how these statistics impact on the property market – yet understanding how these economic indicators affect the properties you currently own, let or are looking to buy, sell or invest in can really help ensure you are making the right decision.

In June the Office of National Statistics issued several useful reports which help us understand what has happened over the last few months and year.


UK gross domestic product (GDP)

This is a broad ‘health report’ for our economy, illustrating whether it is growing or contracting. Its main flaw is that the information is out of date by the time it is published; the latest figures (Oct-Dec 2017) are already six months old, and a lot can happen in that time.

But it can still be a useful measure and it does show some growth in our economy, albeit small, and understanding the drivers behind this growth can help you decide where to invest and which renters to target.

Why it matters is because a successful economy usually gives people job security and with it the confidence and, theoretically, the money – or access to borrowing – to spend on large purchases such as a home. Therefore a healthy economy usually means a healthy property market, too.

But as we all know, when it comes to property, location is so important – in this case because not every industry is doing well. For example, if your area is centred on the service industries, such as professional, scientific or administration work, that’s great news as they are all healthy right now.

It’s less good news if you are looking for capital growth or want to sell in an area of declining industries – distribution, leisure hotels and restaurants – as this means people are less likely to be in a position to drive the growth you require. Take Aberdeen for instance. Its reliance on the oil industry means it is one of the few areas in the UK where property prices and rents are declining.

But this can be good news for those looking to snap up a bargain property, especially if the market is expected to recover, as supply could outstrip demand and you may be able to find a great deal.

Conclusion: learning about the local economy is vital as this will show a more accurate picture than the general economic performance of the UK. On the whole, though, the future is looking positive for the property market.


Inflation (The Consumer Prices Index) 

Inflation measures the cost of living and in May stood at 2.3% – slightly up from 2.2% in April – which is a lower rate than normal as inflation generally rises by about 3% annually.

As with all averages, this is not as clear cut as a 2.3% increase on everything we buy, as much of the increase has been influenced by car fuel costs; furniture and furnishings are likely to have reduced in price.

But even with this lower-than-average increase, most people will find the cost of living higher than last year – and perhaps none more than landlords having to meet business costs, pay for maintenance, provide furnishings etc.

What it boils down to is this: if you don’t increase your rent by the rate of inflation, you’re cutting your own wages.

If you charge £1,000 a month to rent a property and increase the rent by 2.3% each year, after five years the monthly rent would be £1,120 – giving you an extra £1,440 a year. This is the minimum required to maintain your income at a static level, staying in line with inflation. And without this increase, you may find it a squeeze to find additional business costs, or pay to decorate the property or carry out any necessary maintenance to keep your property in the best possible condition for tenants.

Cash buyers are affected, too. To enable a property to maintain its value in cash terms, at the same level of inflation, after five years a £200,000 property would need to be worth £224,083, plus the costs of buying/selling – a pretty big increase over a relatively short period.

Conclusion: maintaining your rents in line with inflation is economic common sense, and something which is worth monitoring


Wages and jobs

If people’s wages aren’t rising, they may struggle to pay their rent or secure a mortgage, so the latest jobs news can be a useful indicator for those with a vested interest in monitoring the property market.

Wages are showing an increase of 4.1% in the first quarter of 2018, compared to the first quarter of 2017 – which is good news, particularly when you consider inflation was just 2.3%. Generally speaking, rents can only rise when wages outstrip inflation so, when wages are rising like this, landlords could – and should – be increasing rents by at least 2.3%.

However, this wage increase is an average so clearly has not affected everybody – and you can only increase rents if tenants are able to pay. Some industries, such as the mining and quarrying industries, have performed better, with their workers receiving 8.1% more, year on year. But things aren’t so bright in manufacturing, where wages saw a decline of 7.1% over the same period.  Meanwhile, in agriculture, arts and education, wages are not increasing by more than inflation.

This means it’s important to understand the nature of employment in your area and, if wages are struggling to keep up with inflation, it will be more difficult to increase rents. Here it is advisable to keep your rents competitive so you can rent out your property quickly, and to target tenants working in industries experiencing good wage growth.

Unemployment levels are another useful barometer of demand for property, both to rent and buy, and can help you understand if it is possible to sell property at a premium. There are 440,000 more people in work than a year ago, according to the ONS, and the unemployment rate is currently 4.2%, which is the lowest rate since 1975.

This all sounds very healthy, and could make it a good time to increase your rents if they are due a review, or sell property if that’s what you are planning.

But as always, it depends on your local economy. And, as we saw with the GDP figures, they can become dated very quickly; we have seen in the news recently of job losses at BT, their headquarters being moved out of the capital, the closures of Maplin and Mothercare, and 4,600 jobs to be cut at Rolls-Royce, largely from Derby.

If you are operating in an area of job uncertainty, it could be good news if you are hoping to pick up a bargain; less good news if you are buying and selling at the same time.

Conclusion: check the jobs situation in your area before making any major decisions as recent announcements could have dampened activity, despite the positive statistics on wages and job growth.


It is always worth looking at the local picture, as the factors which drive the property market can vary wildly from location to location. Affordability, supply and demand, access to finance and people’s confidence all have their own effect on the property market, but it is the local economy which can often have the biggest impact.

For more information about your local area and how the property market is performing, please do get in touch with your local Leaders branch.