Bournemouth rents rise by 19.6% since 2005
The Bournemouth Property Market is a very interesting animal and has been particularly fascinating over the last 12 years when we consider what has happened to Bournemouth rents and house prices.
There’s currently much talk of what will happen to the rental property market following Brexit. To judge that, I believe we must look what happened in the 2008/9 credit crunch (and what has happened since) to judge rationale and methodically, the possible ramifications for long-term investors in the Bournemouth property market. You see, an important, yet overlooked measure is the performance of rental income vs house prices (i.e. the resultant yields over time). In Bournemouth (as for the rest of Great Britain), notwithstanding a slight drop in 2008 and 2009, property rentals have been gradually increasing.
The income from rentals has been progressively increasing over the last 12 years. Today, they are 19.6% higher than they were at the beginning of 2005. In fact, over the last five years, the average growth has been 1.7% per annum. From a landlord’s point of view, increase in average rental income is not to be sneered at. However, the observant readers will be noting that we are ignoring an important factor – our friend inflation.
Turn the clock back to 2005, and we have a property being rented for say £900 a month and that is still being rented at £900 a month today, in Spring of 2017. While the landlord is not getting any less income, this £900 is no longer worth as much. Let me explain, in 2005, £900 may have bought a two-week 4* holiday in Italy. Yet, holidays have increased in line with inflation (which has been 38.5% since 2005), so our holiday would cost today £1,246 (£900 + 38.5% inflation = £1,246). Therefore, the landlord could no longer afford the same holiday, even though having the same amount in pound notes from their rental property.
This means when we compare rents in Bournemouth to inflation since 2005, Bournemouth landlords are worse off today, when they receive their monthly rental income, than they were in 2005 by 18.9% in real terms (rents increased by 19.6% since 2005, less the 38.5% inflation since 2005 – net affect 18.9% drop)
However, rental income is not the only way to generate money from property as property values can increase. Although in the short term, cash flows are diminishing, many Bournemouth landlords may be content to accept that for a colossal increase in capital value. […]