The population of London continues to grow from both internal and external migration. Individuals and families are moving to the capital from other areas of the UK to seek work, while immigrants from the EU and beyond choose London as their first foothold on the steps to a new life.
While incoming numbers continue to grow, those leaving the city are falling, as many see their best hope of riding out the current economic downturn as being to remain in the area which has demonstrated the greatest economic resilience.
Current estimates put the population at 7.9 million, a rise of 8% in the years 1997 to 2011, a figure expected to rise by 1.2 million in the coming 20 years. Unfortunately, the supply of affordable housing has failed to keep pace and has risen only 4% over the same time period.
Particularly hard hit are young people who are seeing their goal of independent living becoming a distant dream as the demand for affordable housing significantly outstrips supply.
How the Rental Sector is Draining the Supply of Housing for First Time Buyers
Contributing to the problems facing London’s potential first time house buyers is the booming buy to rent market. Landlords are able to develop a growing portfolio of properties to rent, achieving high rental returns which in turn allow them to afford the deposit on their next property.
Using the income from their rents, they are able to pay off the all time low mortgages ensuring that house prices at the lower end of the market remain high. This effectively cuts off the supply to the hard pushed first time buyers with limited capital.
It has been estimated by UK estate agency, Rightmove, that those renting must now allow up to half of their take home pay to afford their rent; up 13.6% from 2009 levels.
In the same period, the rate of take home pay has only risen by 5.4%. With the cost of living reaching an all time high, it is becoming virtually impossible for young workers to save for an adequate deposit for their new home.
72% of London’s young buyers have to rely on their parents to supplement their mortgage deposit. Indeed, the term for this phenomenon has entered common usage as ‘the bank of Mom and Dad’! The Council of Mortgage Lenders has stated that the high property prices in London are having a crippling effect on young people struggling to get their foot on the property ladder.
While the average UK house price stands at £163,000 (243,500 USD), in London it is £364,000 (566,000 USD). The average age of a first time buyer is 29 outside of the city and an astonishing 43 years of age in the capital!
As a result, there are 1.6 million youngsters in their 20s and 30s still living at home with their parents with no short term possibility of achieving home ownership.
Even for those who are lucky enough to have made their first foray into the property market, statistics for 2011 showed the figure to be only 193,000 as opposed to 570,000 in 2001.
The Impact from Overseas Investors
The connection between the London purchase and rental market are inextricably linked; with the capital having the largest rental sector in the UK. According to global consultancy drivers, Jonas Deloitte, in 2011, "over 60% of new home sales in Central London were to overseas investors".
In addition to North American and European purchasers looking for residency or investment potential, and other non OECD citizens seeking a political safe haven and economic security, many Asian and Far Eastern buyers wish to purchase with an interest in the rental yield potential.
Preferring to invest their money in new build properties – just the type of housing that a first time buyer would be looking for – these customers are making their purchases in many of the city’s traditional hotspots; Kensington & Chelsea, Westminster, Camden, Tower Hamlets, Hounslow, Barnet, Wandsworth and Lambeth.
It has been estimated that this overseas injection of investment amounted to £5.2 billion, even larger than the Coalition Government’s budget for their Affordable Housing Plan for England for the coming 4 years!
Putting even more pressure on young purchasers are the prohibitive charges made for London’s rental sector. 22 of the city’s boroughs have rents in excess of £1,000 (1,500 USD) per month, 9 have properties for rent from £800 – £900 (1,200 -1,400 USD) per month, and only 1 with rents from £700 – £799 (1,000 – 1,100 USD) per month. These compare with an average UK rate of just £575 (894 USD) per month.
The UK’s Joseph Rowntree Foundation who comment on welfare and social issues have recently assessed that, by 2020, we will see a total of 1.5 million young people between the ages of 18-30 who have been forced into the private rental sector by the in-affordability of the UK’s housing stock.
Unless something can be done to break the Catch 22 situation caused by the proliferation of high rent properties in London, the British tradition of joining a nation of homeowners will be unachievable for the coming generation of young workers.
Ian Wright is 30 years old and lives in London and has little hope of ever buyign his own place. He blogs about London at http://randomlylondon.com