How we measure rental price inflation
In 2024 the ONS introduced the Price Index of Private Rents (known as ‘PIPR’). Unlike some measures of rents, PIPR aims to capture the average achieved price for all rents, not just advertised rents or new lets. This is important because most renters are in long-term tenancies, and don’t experience a change in rent every month. Our new approach also allows us to better capture price changes at a more local level by making better use of the rental data we receive. Chris Jenkins explains the methods we use in PIPR and why we have chosen them.
How do we measure rental prices?
There are several ways you can capture the price for rental property:
- the advertised price
- a new rental price
- a renewal rental price
- an existing rental price
The advertised price reflects what agents and landlords are hoping to achieve for a rental property, and these prices are used in many private sector measures of rents, such as by Homelet and Rightmove. We publish an annual comparison between these measures and PIPR, and explain the differences for users.
The price for ‘new’ rents, is where a tenant takes out a new agreement to rent a property from a landlord, and a ‘renewal’, is where a tenant extends their existing agreement with their landlord. Finally, most renters will be in a long-term agreement (often lasting 6, 12 or 24 months) with landlords where their monthly rental price remains fixed at an agreed price. These are ‘existing’ rents.
The new and renewal rents are typically referred to as the ‘flow’ of rents, whereas these combined with existing rents reflect the ’stock’ of rents. There are differences in the price as measured for the flow compared to the stock. The flow tends to be more dynamic, whereas the stock price is more stable as I have previously explained, and aligns with international best practices.
For PIPR, our methodology is designed to measure the stock, so reflective of the average price for all rents. The rents price data used for PIPR does not contain the information needed to classify a rent as ‘new’, ‘renewal’ or ‘existing’, so it is not currently possible for the ONS to produce a separate flow measure.
It’s also worth noting there are slight differences in the rents data we do use. England and Wales data are predominately existing prices, whereas Scotland is predominantly advertised new rents and Northern Ireland are all advertised new rents. Users should bear this in mind when making comparisons between countries. Regardless of the rental price used, our methodology is applied consistently, aiming to estimate a stock measure.
Producing a stock measure
Ideally, we would select a sample of rented properties and collect a price for this sample each month. Our current sample is around 500k rental properties per year across all countries. It is clearly not possible for us to collect updated prices each month for such a large sample.
Therefore, we use what is called a ‘validity period’. This means once we receive an updated rental price from a property, we assume it stays the same for 14 months (based on rental agreements typically keeping a constant rent price for 6, 12 or 24 months) unless we receive an updated price for that property in the meantime. In this context, an updated price could be higher, lower or the same as the previously recorded price for that property.
When we receive an updated price for a property, the validity period resets, and we start again. If a property doesn’t have an updated price collected during the validity period, then we drop the property from our sample because it is less likely that the rent price has remained constant for longer time periods. We chose a 14-month validity period because this balances the average length of rental agreements against the operational collection of rental prices where, for England and Wales, rental officers attempt to recollect a rental price within 12 to 14 months. A 14-month period allows sufficient time for data collection, without depleting the sample.
Our approach means we only ever use the latest month’s price for a property in our index, which could either be the previous month’s price copied forward, or the updated price just received. We don’t take a 14-month average of all prices we have for that property in the validity period.
Showing our workings
A simplified example might be easier to follow:
Say that we have three properties in our sample, and we collect the following prices in January 2024:
Property A = £500 per month
Property B = £600 per month
Property C = £1,000 per month.
We will use these prices as collected to calculate our stock-based index for January 2024 index. Each property has a validity period marker set to 1.
In February through to July 2024, we don’t receive any updated prices, so the January 2024 prices are assumed to be an accurate estimate of what each property is rented for in these months, and therefore the prices are copied forward and used in each month’s stock-based index.
In August 2024, an updated price is received for properties B and C, this means we now have the following prices for August 2024, noting the price for property A is copied forward, to calculate our index.
Property A = £500 per month
Property B = £700 per month
Property C = £1,100 per month.
The validity marker for both property B and C is now reset to 1, whilst the validity marker for property A is at 8 (reflecting 8 months of use in the index with no updated price received).
From August 2024 to February 2025, we don’t receive any further updated prices for these properties so will copy forward the August 2024 prices. However, in February 2025, property A reaches the end of its validity period, that is, 14 months without an updated price being collected. Therefore, for March 2025 we will drop property A from our sample.
However, we did collect a price for a new property, D, in March 2025 (which could be a new, renewal or existing rental price). This new property enters our index calculation in March (with a validity period marker of 1) and is used alongside properties B and C to calculate our stock-based index.
Looking to the future
Our stock-based method is designed to estimate an average achieved price for all rents, so this accurately captures the UK rental market as most people are in long-term tenancies, and don’t experience a change in price every month. However, we are constantly reflecting on our methodologies to ensure we are capturing the evolution of a fast-moving rental market, so we will continue to investigate options for adding a separate flow-based measure in the future.
Christopher Jenkins is Assistant Deputy Director for Prices Division at the ONS