Reader's question: Have you repeated your national-accounts analysis of residential property yields recently? I'm referring to the long-term yield analysis you most recently did here (I think). Just wondering if this has changed at all over the past year. My guess is not (or possibly it's slightly higher). Do you have any thoughts?
The national accounts rental yield ended 2011 at an estimated 3.97% versus a long-run average of 3.62%, suggesting that house prices are undervalued by about 9% relative to rents – see first chart. The 2011 number is an estimate because ONS has yet to publish an end-2011 figure for the value of the housing stock.
A rise from 3.65% at the end of 2010 reflected an increase of 8.8% in actual and imputed rents last year (i.e. comparing calendars 2011 and 2010), with house prices flat (up by 0.1% between December 2010 and December 2011 according to the DCLG house price index, which is used to revalue the housing stock).
The housing stock to disposable income ratio remains far above its long-term average but is now 6% below its rising trend – second chart. This trend, of course, reflects the same supply / demand factors that have pushed up rents relative to income over the long run.