ONS data confirms rents in London are a high-rise nightmare
The latest monthly ONS economic review includes a focus on housing tenure. There are a number of takeaways from this latest release but the prospects for those in rented accommodation appear gloomy, and Londoners, especially younger Londoners are bearing the brunt.
The level of price increase in London outstrips anything seen in the rest of the country, and the national average. But, of course, rental prices are not a problem if the people who are renting can afford to pay them. Londoners earn more than workers in other regions, but even taking this into account the figures indicate that rents are rising at almost eight times the rate of wages in London. According the ONS, wages increase by 0.4% in London while rental prices increased by 3.2% over the same period.
Rental prices to earnings ratio by region
The difference between the rate at which Londoners wages increase and the rate at which Londoners’ rents increase is greater than anywhere else in the country. This has serious wider impacts, money spent on rent is unlikely to go to supporting other industries, and so, similar to debt, this can create a drag effect on the economy. However it has its most severe impact on the lives of private renters themselves. The ONS calculates that in 2015 money spent on private rent accounted for five per cent of total disposable income on average (i.e. pooling renters and non-renters alike). However among renting households it accounted for 20 per cent of disposable income, up from 10 per cent in the early 1980s. A full fifth of renters’ disposable income is going on their rent. This burden falls significantly harder on younger people, and especially those in the capital.
Today’s data indicates that while the aggregate trend in home ownership (which had been in decline for the first time in 30 years after the downturn) has started to reverse, the impact on subgroups of the population remains severe. There has been a sharp and expensive rise in private renting, in particular among younger age groups. In 2014 60 per cent of people aged 21-25 were renting privately, up from just 20 per cent in the early 80s. As the chart below indicates, early to middle aged groups also experienced increases in this area.
Proportion of individuals by age and housing tenure, rolling five-year age groups, UK
The impact increased competition for private rented accommodation has been dramatic. ONS figures show that in London, rental prices are 20% higher than their 2011 level.
The chancellor recently introduced Lifetime ISAs as a method of encouraging younger people to save for retirement or their first house. My colleague Tim Sharp has already blogged extensively about his reservations about LISAs as a pension alternative. It is worth thinking about how effective they might be in resolving the housing crisis. On the one hand an extra £1 for every £4 saved tax free would constitute a considerable bonus when saving for a house. But, only for young people (flatteringly defined by the chancellor as under 40) who can afford to reduce their disposable income yet further in order to save. Based on the figures above, that group is likely to exclude a lot of young Londoners.