Rental growth and CPI

I have read and read again many times that average rent is linked to salaries and CPI. Fair enough, it is not reasonable to expect average rent to rise much above 30% of average household income.

But is this true for individual properties? Eg. average house prices have risen on average 3% above CPI for the last 40 years or so, but am I reasonable to say " Rent on an individual properties should on average be expected to keep pace with capital gains when considering buying and holding for the long term of 10 years or more?".
 
always_learning,

There is NO physical link, just a predisposition for them to track reasonably consistently.

Remember that for a statistician, 66% gives a standard deviation and 85% is a reasonable confidence level - there is always lots of space for individual rents to behave very differently from the market as a whole :)

if you owned EVERY house this advice would be very useful...while you only own a few houses in the market, well personal experience will deviate from the statistician's line substantially!

Cheers,

Aceyducey

PS: Did you know that public speaking is rated as the no.1 human fear. However, statistically speaking public speaking is not a significant fear (as most people actually public speak at some stage in their lives)....work that one out!
 
AL

It's also reasonable to say that rentals will lag behind the capital movement of properties. Reasons for this will be the length of leases, usually 12 months, inability for tenants to accept a large one increase, but to accept a gradual, regular increase - a bit like the boiling frog theory.

Agents will generally use CPI as a reason to tell tenants their rent should go up.

If at some point in time, the resident tenant cant/wont pay the increased rent, there will be a new tenant who (we hope) will.

Everyone wants a fair return so eventually it evens out.

I think even tenants recognise that there is a link between the value of a property and the rent paid. After all, the value of a property is about what it offers to the person living in it - if you want to live near water, near the shops, golf course or want prestige or a big house, you have to pay more.

Geekay
 
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