As London rents grow faster than wages, how can we address this affordability crisis, asks Shelter policy officer Pete Jeffrey.
Private renting in London is beyond expensive: it’s a disaster for families on normal incomes.
The rising cycle of higher and higher rents in the capital means that within months it will be twice as expensive to rent a home in the capital as it is in the country as a whole. Average wages are higher in London, but not even close to making up for that level of rent.
This problem is not a result of the recession, but has been building for more than a decade. As this graph illustrates, average London rents have grown faster than wages since at least 2001, with the impact made worse by stagnant wage growth since 2009/10.
London median rents, wages and inflation (2000/01 = 100)
Source: ONS, DCLG
Renting is now 30% more expensive than paying a mortgage in London, and that’s before taking account of fees and charges. Evidence suggests that London renters pay a premium just to set up a renting contract in the capital with average deposit, rent in advance and fees calculated at more than £2000 in London – twice as much as is needed in Manchester.
It’s no good saying to London renters, ‘just live further out’. The rising cost of commuting is leaving working Londoners trapped.
Let’s look at rents and commuting costs from four areas: inner prime London, inner cheaper London, outer London and commuter towns outside London.
Apart from inner prime London, it can be comparably expensive to live further out as a renter as it is to live closer in the centre of the city, once commuting costs are included.
Is it always cheaper to rent further out?*
How can we address this affordability crisis?
Clearly, supply is crucial. We desperately need more homes available to buy, to rent privately and to rent from a social landlord. Increasing supply in this overheated market is the only way to fundamentally realign the cost of renting with an affordable proportion of incomes.
However there are reforms that could be made to improve the situation for London renters in the short term, without huge investment.
The London Rental Standard is a big opportunity to redesign renting in the capital to make it more transparent, accountable and affordable.
For example, if letting agents want to receive the badge of accreditation, they could be made to publish a ‘cost of the tenancy’ alongside each property to let. By being open about how much they charge in fees, they will be forced to compete with each other on cost, rather than relying on renters to stump up arbitrary amounts once they have chosen a property.
Or landlords could be encouraged through the London Rental Standard to offer Shelter’s stable rental contract, which increases rents predictably with inflation rather than well above. This is good for landlords’ business models as well as good for tenants.
Finally, by putting tenants on the governing board on the London Rental Standard, the Mayor would ensure that affordability is not forgotten or downplayed.
*Based on the average weekly rent for a two-bed property in a basket of local authorities for each broad area, plus the cost of a weekly travel-card or weekly cost of a travel card.
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