Ratio reveals the most affordable place to buy a home

terrace on hil-2The most affordable borough to buy a home in London is Barking and Dagenham.  A house in this area in the east of London costs a fraction more than seven times local annual earnings.

Barking and Dagenham is the only borough in London with a ratio that is below the average for England. Across England the median house price is 7.49 times the salary for a full time job.

The ratio is calculated by the Department of Communities and Local Government using median house prices rather than the average to avoid distortion due to highs and lows.  These are then compared to median wages locally.

According to this calculation the most affordable boroughs other than Barking and Dagenham are mostly in Outer London.   The median house price is less than 10 times salary in Bexley, Havering, Croydon and Hounslow, and in the Inner London borough of Tower Hamlets.

The least affordable places are central and west London boroughs including Wandsworth, Richmond, Camden, Hammersmith and Fulham and Westminster. But at the top of the scale is Kensington and Chelsea, where the median house price was nearly 40 times the median salary in 2015.

Since the start of the century the ratio in the royal borough has gone up by 178%.  And a similar dramatic change, from lower levels, has happened in Hackney and Waltham Forest, where the ratio has gone from around five times salary to 15 and 13 respectively since 2000.

The change from 2014 to 2015, the most recent years recorded, was highest in Redbridge where the ratio changed by 17% from a little over 10 times salary to just over 12.

In Kensington and Chelsea, the ratio actually fell by 6%, and in Westminster it came down by 1%.

Median House Price to Earnings Ratio 2015
Kensington and Chelsea 39.67
Westminster 24.16
Hammersmith and Fulham 22.33
Camden 19.46
Richmond upon Thames 18.07
Wandsworth 17.68
City of London 17.11
Islington 16.32
Hackney 15.23
Harrow 14.71
Barnet 14.28
Merton 14.27
Ealing 14.25
Haringey 14.11
Kingston upon Thames 13.83
Brent 13.67
Lambeth 13.08
Waltham Forest 13.02
Southwark 12.85
Bromley 12.42
Redbridge 12.21
Enfield 11.64
Lewisham 11.15
Sutton 10.90
Greenwich 10.75
Hillingdon 10.29
Newham 10.12
Hounslow 9.88
Croydon 9.83
Havering 9.78
Bexley 9.41
Tower Hamlets 9.00
Barking and Dagenham 7.19

Source data

See also

More “affordable” homes but the rents prove unaffordable for many

The homes affordability crisis

The Housing Shortage

 

 

Is this the beginning of the end of the council house?

Council Housing Thamesmead-2London is soon to pass a housing landmark – the amount of social housing provided by the private sector is about to overtake the number provided by councils.

There are currently 799,400 households in social housing across the capital. That’s 23% of all households, and the rate has been fairly stable for the past 7 years, falling very gradually from 24.6% in 2009. During the same period the demand has increased from a growing population, and there are more families living in social housing in London now than there were in 2009.

What has been changing more dramatically is the ownership structure. 20 years ago town halls owned 3 times the number of homes as housing associations in the social housing sector.  The latest figures on housing stock for 2015 show that they are now near parity and the trend suggests that the majority of homes will be owned by private providers this year.

Social housing chart

Council-owned housing stock has been in decline since the 1980s when the government of Margaret Thatcher introduced the Right To Buy scheme to enable tenants to buy their council property.

Housing associations have been building at a faster rate than council have been replenishing their stocks and some councils have transferred their homes to these private providers.

A number of London boroughs have done this.  Richmond owns no housing.  Bexley, Bromley and Merton have also transferred their social housing stock to private registered  landlords, although all have a very small number of homes still listed under their ownership.

In contrast, the borough of Southwark owns 36,687 homes, the largest number in London.

Council housing stock

As many people struggle to find a suitable place to live the demand for social housing remains strong.  More than a quarter of a million households are on housing waiting lists held by local authorities.  The number has gone up by 3% since last year to 263,491, the first rise in 10 years.

All local authorities have a register of people who are seeking social housing, which offers much lower rent and secure tenancies.  The criteria councils use to decide whether someone is eligible for a place on the register have changed since 2011 when they were given greater freedom to manage the lists.  This has contributed to the reduced number of people on the lists, until last year’s rise, according to the Department for Communities and Local Government.

Most councils warn people seeking a place on the register that with limited numbers of houses and few becoming available each year they are likely to have to wait a long time for a property, if they qualify to receive one at all.

Whether they are hoping for a council house or social housing from a housing association, their chances are limited. The social rent sector is under pressure.  Out of more than 17,000 new “affordable” homes built in London last year only 3,000 were for social rental, as reported by Urbs.

This means that many people on lower earnings will continue to seek an affordable option in the private rental market.  Rental price increases in recent years have made this a real struggle, as reported here, which is why it has become one of the key battlegrounds in the forthcoming elections for Mayor.

Source data

See also

Social housing rental defies location-driven pricing of private sector

Families face the biggest premiums for renting homes in the capital

Paying the rent takes up 72% of income for private tenants

 

Rent strike highlights students’ plight but many young people are worse off

montage 7Students at UCL are holding a rent strike to try to force the university to cut accommodation charges. They want their rent at halls of residence reduced by 40%.

The group UCL Cut the Rent says that collectively they are withholding £250,000 until their demand is met.  They say that rents have increased by 56% since 2009 and accuse the university of profiteering.

The group says that many students struggle to pay the rent, pushing them into debt and poverty which affects their studies.  While students may be struggling financially, the plight of young people trying to find affordable housing in the capital is a wider issue and the data for earnings and private rents shows that there may be many who are worse off than students.

The rent for a single room at UCL’s Max Rayne House student accommodation in Camden is £135.59 per week.  This is inclusive of bills such as heating, water rates and council tax.   At Ramsay Hall in Bloomsbury the weekly, single room rent is £209.79, and the rent here includes bills plus breakfast and dinner each weekday.

These fees may be beyond the reach of students, but if they were renting in the private sector in Camden they would be facing far higher rents.

The latest data from the Valuation Office Agency, which advises the government on property and rental values, shows that the median rent for a room in a shared house in Camden is £683 per month, or £157 weekly.

Some cheaper options may be available.  VOA data shows the rent in the cheapest 25% of property is £628 a month or £144 weekly.  These rents do not include any of the bills a person has to meet in private accommodation.

There is no doubt that a student with a maximum maintenance loan of £10,702 will struggle to live in London.  The loan is intended to cover living expenses for term time plus the Christmas and Easter holidays, as most students work over the summer. A maximum loan means an income of £267 for 40 weeks.  The rent, inclusive of bills, at Max Rayne House would absorb 50% of this income.

Most students supplement their loan income by working part time. A survey by Endsleigh Insurance of 4,600 students puts monthly earnings on average at £316 or a little over £70 a week.

For those not in education, someone over 21 earning minimum wage who is working full time, 40 hours per week, earns a gross salary of £13,936. Across the year that equates to £268 per week.  Renting a room in a shared house in one of the cheaper Camden properties would take up 53% of their gross earnings. After tax and and national insurance the net earnings would be closer to £230 per week, so the rent would be 62% of income. Then there are the bills on top.

For 18-20 year-olds, earnings are lower with the minimum wage at £5.30 an hour giving a weekly income of £212.  Once again, this would be subject to tax meaning net earnings of around £192.

People on minimum wage may be eligible for some support. The government’s recommended benefits calculator suggests that a 21-year-old working full time for minimum wage, living in a shared house in Camden would receive housing benefit of around £30 a week.

Cheaper accommodation can be found in other parts of the city. The VOA data suggests that the cheapest boroughs for renting a room in a shared house are Greenwich, Bromley, Croydon and Lambeth. But a lack of affordable housing for young people has meant that many remain living with parents or return to do so after further education.

As previously reported by Urbs, the proportion of people aged 20-34 living with parents has climbed to 24%.

living with parents

The rent strikers of UCL have highlighted the struggle for students faced with the cost of living in London.  They are undoubtedly finding it tough but life for the poorly paid young people who are not in education may be even tougher.

Valuation Office Agency source data

See also

Universities climb world rankings, but here’s how they score against the best

More “affordable” homes but the rents prove unaffordable for many

Where are all the young people? The in-out flow of 20-something Londoners

Universities marked down by their own students

Housing the top concern in survey that reveals the worst and best of London

Flats Tom Gowanlockshutterstock_134424665-1-2-1-2

Photo: Tom Gowanlock | Shutterstock.com

A survey of nearly 4,000 Londoners has found that their greatest worry is the cost finding a place to live.

When asked to identify the worst thing about living in the capital 31% of the responses pointed to the cost of a housing and a further 28% to the general cost of living.

Just 8% say they are satisfied with housing in London. Their concerns cover the availability of low cost homes to buy and the high cost of rents. Only 10% believe that the homes being built currently are affordable for a range of people. As revealed by Urbs, much of the housing labelled as “affordable’ is beyond the means of many.

There is also dissatisfaction with the private rental sector. 71% of respondents said there is a lack of affordable private rental property and most are unhappy with the quality of the rentals that are available.

The survey is the second Annual London Survey carried out by City Hall.  It polled 3,861 people online at the end of 2015.  The participants were self-selecting but the data was weighted to reflect the gender, age and ethnic mix of London.

Around half the people polled have lived in the city for more than 20 years.  More than a quarter had lived in their local neighbourhood for the same amount of time.

Their other big concerns shown in the survey included 67% of respondents who said that they were dissatisfied with the fairness of wages, 62% unhappy about the affordability of public transport and 57% dissatisfied with air quality.

But there were some positives to living in the capital.  The thing identified by most was simply the huge variety of things to do.  Access to museums, galleries, theatres and live music emerged as one of the big pluses of London life for many.

Despite the problems, more people like rather that loathe London life.  Overall, 75% said they are satisfied with London as a place to live. But when asked about the future they came back to their chief concern: housing.  The issue most mentioned as the challenge facing the capital is building affordable homes.  It’s an issue that the Mayor himself has called an epic challenge.

Source data

See also

The jobs success and housing failure causing a crisis for the capital

Under 40s locked out of housing market destined to be “generation rent”

More “affordable” homes but the rents prove unaffordable for many

Buying a home gets further out of reach, now 11 times annual salary

Flats Tom Gowanlock shutterstock_134424665-1-2

Photo: Tom Gowanlock ┃Shutterstock.com

The cost of a home in London has risen to 11 times the annual salary. This startling statistic is revealed in the data on earnings and house prices from the Office of National Statistics.

Each April the ONS does a survey on earnings and it has just released this date revealing that the median weekly pay in London was £660 or £34,320 annually. The median is the mid point, thus avoiding the distortion of the high and low numbers in calculating an average.

Data from the Land Registry shows that the median house price in London for the same period was £379,000 or 11 times earnings.

Someone earning the median wage who had managed to save perhaps £20,000 as a deposit and then took out a maximum 4.5 times salary mortgage would still only have raised 46% of the cost of the median property. It is hardly surprising therefore that the proportion of homes bought with a mortgage is falling. As reported by Urbs, cash buyers are becoming the dominant group in some areas of central London. They are mostly older people who have sold a more expensive property, or overseas investors.

The ratio of earnings to house prices has been on a steadily upward path since the late 90s, apart from a small dip following the financial crisis of 2008. In 1997 the median house cost 4 times the median salary. That ratio has since more than doubled across the country, and nearly trebled in London.

house to earnings timeline

In some parts of London the figures are even more eye-watering.  A median price home in Wandsworth costs 17 times the median earnings of someone living in the borough. In Westminster it is 22 times and in Kensington and Chelsea the median house price is 38 times salary.

house to earnings map

The data for the rest of the country helps explain why so many people choose to move out of London. In the South East generally the ratio is 9 times earnings. That’s lower than all but the 3 London boroughs on the eastern edge of the city, Havering, Barking and Dagenham and Bexley. In the North East of England a home is just under 5 times annual salary, a ratio not seen in London since the late 90s.

house to earnings national

These ratios mean that buying a property will remain out of reach for many in the capital. The much talked about ‘generation rent’ looks like it’s here to stay.

Source data

See also

What would you do with £1.6 million in cash? Buy a house, of course

The jobs success and housing failure causing a crisis for the capital

Why the London property market is heading back to the 1970s

 

 

More “affordable” homes but the rents prove unaffordable for many

High Rise-2More affordable housing was delivered in London in the last financial year than for any period dating back to 1991. 17,913 homes were built or acquired and made available in the affordable rental sector, according to data from the Department for Communities and Local Government, and the GLA.

This will be welcome news to many Londoners who struggle to find a suitable place to live against a backdrop of rising private rents and ever climbing property prices. But the increase in delivery is being driven by a particular part of the affordable housing sector and for many it is not really affordable at all.

Affordable rents were previously available through what was termed social housing. This is rented property provided by a council or a housing association with long, secure tenancies and rents at around 50% of the market rates.

Housing associations also provided Intermediate rental. This gives a tenant a subsidised rent, usually around 60% of the market rate, while they save for a deposit to buy the property.

In 2010 the government introduced a new category, which it confusingly called Affordable Rent. This aimed to give social landlords a route to maintaining or increasing the amount of lower cost rental while relying less on public funding. It allows them to charge more and have less restrictive tenancies. Affordable Rent properties can charge up to 80% of the market rate.

As the chart below shows, it is this sector that has taken off in the past year, increasing the amount of affordable housing, but the amount of Social Rent housing has declined sharply since AR was introduced. And this is not due to the building of new stock alone. Some Social Rent property is re-classified as Affordable Rent when it becomes vacant.

Affordable rent

The last time the delivery of affordable housing was at this level was in 2011-12. In that year a comparable number of Intermediate Rent properties was made available. But in 2011-12 there were 11,374 Social Rent homes. Last year there were 3,053.

To examine the impact on monthly rents Urbs looked at the data on market rates for various property types, previously reported here, and applied the Affordable Rent and Social Rent rules. We have used the median London price for each size of property determined by the Valuation Office Agency, which advises the government on property pricing.

Market Rate Affordable Rent (80%) Social Rent (50%)
1 Bedroom £1,155 £924 £577.50
2 Bedroom £1,400 £1,120 £700
3 Bedroom £1,695 £1,356 £847.50
4 Bedroom + £2,500 £2,000 £1,250

A family needing a 3 or 4 bedroom house would require a substantial income to afford an Affordable Rent and in many areas of central London the cost will be much higher.

Some families may be able to claim Housing Benefit to bridge the gap but the Benefit Cap introduced in 2013 means that the total claim for all benefits for a family is £500 a week – the amount needed just for rent of a 4 bedroom house in these calculations.

In its own impact assessment of the policy in 2011 the government acknowledged that the difference between the Social Rent and Affordable Rent would be hard for some to meet and reduce their housing security, or as it put it:

“Although some households are not likely to realise the same degree of benefits as would have been the case had they been allocated a social rented property (e.g. in terms of the introduction of time-limited tenure and potential for higher rents) the policy will also bring substantial advantages to the same type of households by increasing supply”

It says that without the policy there would be far less affordable housing and these people would have to wait for the limited amount of social housing while remaining in private rental properties at higher prices.

It can be argued that the introduction of the Affordable Rent category has addressed a decline in social housing. But the increase in affordable housing may be of little comfort to the least well off for whom an affordable rent of up to 80% of market rate in London is, well, just unaffordable.

Source data

See also

Families face the biggest premiums for renting homes in the capital

Under 40s locked out of housing market destined to be “generation rent”

Renting in London: 2 bedroom homes