The 'housing inflation' you've never heard of is the highest its ever been

The cost of keeping a roof over your head continues to rise.

James Harrison
Updated ·6 min read
inflation Colourful (red, amber and green) model homes on £10 notes and alongside newly minted pound coins.
Inflation remains stubbornly high in the UK, with housing costs adding to the overall figure.

The UK has seen inflation rise to its highest level since April, with the consumer prices index (CPI) climbing to 2.3% for October, up from 1.7% in the previous month.

While the CPI tracks just the value of a 'virtual basket' of essential goods and services, the CPIH - CPI plus owner occupiers' housing costs – rose even higher, standing at 3.2% in the 12 months to October 2024, up from 2.6% in September.

The CPIH includes the rate of so-called "owner occupied housing" (OOH) inflation, which is a less well-known measure of inflation that essentially measures the cost of keeping a roof over your head – regardless of whether you're renting or own your own home.

The BBC's economics editor Faisal Islam was one of those to point out that OOH inflation now stands at 7.4% – believed to be the highest recorded.

Here, Yahoo News UK makes sense of the issue.

Owner occupier housing, often abbreviated to OOH, is a measure of inflation used in relation to housing costs.

It doesn’t include the day-to-day costs of running a home – such as food, utility bills, repairs and other expenses – which are classed as "consumer goods". The changes in these prices are measured by consumer price index (CPI) inflation. That's the number that tends to pop up in headlines you see each month. On 21 November, for example, the major news was that CPI inflation jumped to 2.3% – the sharpest increase for two years.

OOH attempts to keep tabs on the cost of accommodation in its purest form in a manner that can be applied to everyone, regardless of whether or not they own a home or have a mortgage.

"The way we measure that 'H' part [of OOH] is using a rental equivalent," a spokesman for the Office for National Statistics (ONS) told Yahoo News. "How that model works is by saying 'how much would it cost to live in any given property?'"

This is because, as the spokesman put it: "You don't get a receipt for living in your house."

The 'rental equivalent' model allows the ONS to track the value of 'housing services', without also having to factor in the asset value of a home, or whether it is owned outright, mortgaged or rented.

This then allows housing costs to be combined with the CPI to create the CPIH (Consumer Prices Index including owner occupiers' housing costs) to give a more complete view of inflation in the UK.

Everyone. Just like the CPI measure of inflation tracks the cost of daily goods like a loaf of bread or cup of coffee, OOH tracks the cost of keeping a roof over your head.

However, it does not apply to everyone as evenly as CPI does.

For example, while three people meeting for a latte will be equally affected by changes in price for their beverage, they could be affected differently by OOH if the first rents, the second has a mortgage and the third owns their home outright.

Because rental prices are used as a 'proxy' to estimate the cost of housing for everyone in the UK, the private rental market is one the biggest determinants of the OOH rate.

In recent years it has been strongly driven by fluctuations in the housing market both during the COVID-19 pandemic and in its immediate aftermath.

An ONS spokesman said: "Why we're seeing OOH so high is because rental prices have been increasing significantly over the period since we came out of COVID.

"If we think back to then, around 2020/21, when the economy shut down, people were working in their homes and not going out. There was this issue called the 'race for space'.

"People moved out of the cities, out of London, because they couldn't move around, so they bought bigger properties.

"Actual rental prices fell, or at least the growth slowed, because there wasn't the demand for for rents in London and other big cities - but then restrictions started falling away and people moved back."

UK, London, blurred motion of incidental business people walking to work with view of the financial district behind
People leaving London during the COVID pandemic - and then returning - has partly been blamed for surging housing costs.

Probably not, according to the experts – and there are already signs that it is falling.

"We saw the growth in rental prices peak in about March 2024 and prices have just started to tail off slightly," said the ONS spokesman.

"Renters typically enter into a contract of 6-12 months and that process stays static, but we're trying to measure the stock of housing, rather than the flow."

The ONS spokesman added: "There's no direct read across [between rental and house prices], but they are interlinked and you also have to factor in policy changes that could add additional costs."

The best early indicator of which direction the OOH rate will go in comes from estate agents, who see the state of the market on a daily basis through the lens of property and rental prices.

But this is also subject to huge regional variations, hence the need for ONS modelling to even this out across the UK as a whole.

"If you think of a bathtub of water, we're measuring the temperature of the water in the tub and the estate agents are measuring the temperature of the water coming out of the tap."

OOH does not affect CPI, which is based purely on a 'virtual basket' of day-to-day goods and services.

The CPIH measure combines OOH with the CPI to give a more comprehensive view of the cost of living.

The ONS spokesman said: "Because OOH represents housing costs, it's quite a big component of overall spend.

"When we talk about housing as a component of CPIH, it's about 16% of the basket - but what that means for the rest of the basket depends on the components of the other aspects of the basket."

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