The national accounts rental yield – actual plus imputed owner-occupier rents expressed as a percentage of the value of the housing stock – stood at an estimated* 4.0% at the end of the fourth quarter of 2012, the highest since 1999. This compares with a long-run average of 3.6%, suggesting that house prices are undervalued by about 10% relative to rents – see chart.

The rise in the yield from 3.9% a year earlier (i.e. in the fourth quarter of 2011) reflects a 7.3% increase in rents in the latest four quarters from the previous year offset by an estimated 3.3% growth in housing stock value.

The merits of the rental yield as a valuation metric were discussed in a previous post.

*The value of the housing stock is estimated after end-2011 by linking to the ONS (previously DCLG) house price index.