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

 

 

Mayoral Election Issues: The homes affordability crisis

Flats Tom Gowanlockshutterstock_134424665-1-2-1-2-2

Photo: Tom Gowan ┃Shutterstock

London may like to see itself as a forward looking and progressive city but when it comes to property it is heading back to the 70s. Owning your own home is a long-held aspiration for millions of people that was realised in the property booms of the 80s and 90s, assisted by the Right to Buy scheme where tenants were allowed to purchase their council-provided property.

But the data on property tenure across London reveals that trend is being rapidly reversed and the pattern of ownership, private rental, and social housing now resemble London in the 70s.

After climbing to its peak in the 90s owner-occupation had fallen to 50% by 2011.   For the majority of younger Londoners, buying a home is no longer an option and those in their 30s appear resigned to belonging to what has been labelled “generation rent”.  In 1990 nearly 60% of people aged 25-34 owned their own home, by the end of 2014 that had dropped to 26%[1].

For those under 25 the picture is even starker.  Just 6% of this age group own their own property. In 1990 it was nearly a quarter of them.

The data shows that the only group where home ownership is climbing is the over 65s.  These people mostly own their own home outright, having paid off their mortgage.

Property ownership by age

The proportion of homes owned outright now exceeds those owned with a mortgage across England and Wales according to the English Housing Survey carried out by the Department for Communities and Local Government[2].  According to the figures collected in 2014/15, 33% of homes in England are mortgage free compared to 30% households that are still paying the mortgage.  61% of those who own their home outright are over 65.  London is the only place where this tipping point is yet to be reached and mortgaged homes (27%) still outnumber wholly owned ones (23%), but the gap is closing as the number of properties owned with mortgage falls.

The problem for young Londoners seeking a mortgage is not just one of meeting the monthly payments but in raising the funds in the first place.  The median property price in the capital is now 11 times average earnings, compared to 7 times across England.

The price to earnings ratio is at the national average in Barking but in Wandsworth it is 17 times earnings, in Hackney nearly 15 and in Kensington and Chelsea 38 times earnings[3].

house to earnings map

This situation is worsening more rapidly in London than elsewhere in the UK.  In 1997 the median house cost 4 times the median salary. That ratio has since more than doubled across the country, but nearly tripled in London.

The reduction in home ownership in London, particularly for under 35s has fuelled the growth in the private rental sector.  The most recent English Housing Survey revealed that 1 in 4 of the private rented houses in England are in the capital and the private rented sector increased from 14% to 30% in the 10 years between 2004 and 2014-15[4].

As the population of the capital grows, demand is outstripping supply and the affordability of rent has become a problem for people who were already priced out of the ability to buy a property.

For these people, rent takes up a very large proportion of their income. The English Housing Survey revealed that London households were paying 72% of their gross income in rent. This was reduced to 60% when housing benefit was included. By comparison, rent accounts for 52% of income for households across England.

The plight for young people under 24 was worse. The survey found that they were handing over 88% of their income in housing costs when benefits are excluded.

The latest data from the Valuation Agency Office[5], a body that advises the government on property prices, shows the high level of London premiums in the private rental sector.

We looked at median prices to iron out the highs and lows that affect averages.  The proportion of the price difference between London and the rest of England is biggest for 2 and 3 bedroom houses – the types of property that families need.

Median monthly rental
London England
Room only £550 £350
Studio £875 £500
1 Bedroom £1,200 £540
2 Bedroom £1,450 £595
3 Bedroom £1,750 £695
4+ Bedroom £2,700 £1,200

Across London there are distinct variations with the highest median rate for all properties in Westminster, and only 4 boroughs – Sutton, Havering, Barking and Dagenham and Bexley, where it is below £1,000.

Rental all prop map

The rise in rents seems relentless. Data from the ONS’s Index of Private Housing Rental Prices, a quarterly index that tracks the prices paid for renting from private landlords shows a 4% rise in Feb 2016[6] compared to the same period last year. Over a 10-year period prices in London have risen by 35% compared to 17% for the rest of England.

Faced with high costs in the private sector there has been a growing demand for Londoners for rental property at an affordable price.  Previously this fell into the category of social housing – property provided by a council or a housing association with long, secure tenancies and rents at around 50% of the market rates.

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.

The problem for London is that for many, Affordable Rents are not affordable.  Let’s look at the numbers if we apply the social and affordable rent rules to the median monthly market rates we saw above from the VOA.

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 that needs 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.

Increasing the supply of housing is one key to solving the affordability crisis. All mayoral candidates in the election are promising to do this but after years in which house-building failed to keep pace with demand this will be a mammoth task.

See also

Mayoral Election Issues: The Housing Shortage

Source data

[1] http://data.london.gov.uk/dataset/housing-london

[2]https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/501065/EHS_Headline_report_2014-15.pdf

[3] http://data.london.gov.uk/dataset/ratio-house-prices-earnings-borough/resource/122ea18a-cb44-466e-a314-e0c62a32529e

[4]https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/501065/EHS_Headline_report_2014-15.pdf

[6] http://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/indexofprivatehousingrentalprices/february2016

This report was produced in association with London Live’s special election programme, London Votes.

Lowest paid living in Newham as rates remain static across capital

Pay ShaunWilkinson shutterstock_207548536-1-2

Photo: Shaun Wilkinson ┃Shutterstock.com

The lowest paid full time workers in London appear to be living in Newham. Hourly rates of pay for residents of the East London borough are lower than the typical rate for the UK generally at £12.90.

People living in the City of London or the best-paid borough, Westminster, are typically earning in excess of £250 per week more with an hourly rate of pay over £20.

The figures are revealed in the Annual Survey of Hours and Earnings from the Office for National Statistics. They are based upon a sample of PAYE tax records and are considered the most reliable guide to pay rates.

Newham is not the only London borough where the median pay rate is below the rate for the UK generally. In Barking and Dagenham the full time hourly rate is £13.31, that’s 5p per hour below the UK median rate.

In contrast, across the river from Newham, the hourly rate in Greenwich is £3 higher.

Hourly pay full time London map

The median rate in Brent is below £14 per hour. In Enfield, Haringey, Waltham Forest, Hounslow and Ealing it is below £15.

Outside the centre, rates are highest in a pocket of South West London. Kensington and Chelsea, Richmond and Wandsworth have rates above £19 per hour. In Hammersmith and Fulham it is above £18.

The ONS uses a median rate or mid point rather than calculating an average, which would be distorted by a small number of very highly paid people. The rates are before tax and do not include overtime.

Rates of pay in London remain higher than the rest of the country. The London-wide median rate for full time employment is £16.16, £1.44 per hour more than the next nearest region, the South East of England, and £4.15 more than the lowest paid region, Northern Ireland.

Hourly rates full time regional

The median rate across the UK moved very little in the past year, rising by just 1.5% but that is 5 times higher than London where the hourly rate rose by just 5p since 2014.

Source data

See also

Over 750,000 jobs pay less than the living wage in the capital

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

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

 

 

Over 750,000 jobs pay less than the living wage in the capital

Bike work-2Nearly 1 in 5 jobs in London pays less than the living wage and in some areas of the capital between 30 and 40% of work has an hourly rate below the level Londoners need to live on.

The proportion of jobs below living wage has risen from 13% in 2008 to 19% last year, with women affected more than men and under 24s particularly hit.

Data from the Office for National Statistics show that in 2014 more than three quarters of a million jobs in London paid less than the living wage. Part time jobs are affected more than full time employment, 4 times more likely to be below the living wage.

The London Living Wage (LLW) is set by the Greater London Authority. It is a voluntary rate and promoted by the Mayor, who is trying to get employers to sign up. It is currently set at £9.15 per hour. Last year during the period for these job statistics it was £8.80.

The concept of the LLW was introduced in 2008 and followed by an Out of London rate in 2012. From 2008 to 2010 the proportion of jobs in London below the rate was stable at around 13%. In the past 5 years there has been a growth in low pay, low skill jobs but wage stagnation during the economic downturn of 2008/09 has meant that earnings are lagging behind.

Living Wage rate

The data shows that some sectors of the jobs market that are growing fast have a very high proportion of jobs below the living wage – 45% of social care jobs, 55% in retail, 65% in food and accommodation, and 78% of cleaning jobs.

It is not only work for private companies that is paying poorly. 6% of jobs in the public sector also pay below living wage level. That’s 51,000 jobs.

The only legal protection on pay is the National Minimum Wage, currently set at £6.50 per hour for those over 21. In the budget in July the government announced a new legal rate for over 25s, rather confusingly calling it the National Living Wage. This will be introduced in April at £7.20, but it will not get to the current level of the London Living Wage until 2020.

And it will offer no help to those under 24. Nearly half the jobs in this age group pay less than the living wage.

living wage age

Since 2008 the proportion of 18-24s paid below living wage has gone up by 11% and the rate of 25-34s has risen by 7%.

Women are more likely than men to have jobs below living wage – 22% compared to 16% of men.

London’s rate of 19% of all jobs paying below living wage makes it one of the lowest levels in the UK, on a par with the South East of England and Scotland. But it is not a uniform picture across the capital. 5 boroughs, Harrow, Waltham Forest, Enfield, Sutton and Newham, have rates at 30% and above.

Living wage map-2

Harrow has the second highest proportion of jobs that pay below living wage in the UK. Waltham Forest has the 7th rate.

While parts of the capital enjoy a high proportion of jobs paying above the living wage, tens of thousands of Londoners in the outer boroughs will continue to struggle with the cost of living in the city.

Source data

See also

Living Wage helps some but thousands struggling with low pay in London

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

Pay rates underline gap between rich and poor boroughs

25% rise in TfL staff earning more than £100,000

tube speeding pastThe number of staff at TfL paid more than £100,000 has gone up by 25% in the past year. More than 450 people are now earning 6 figures, according to its draft annual report.

This latest rise comes on top of a significant increase in the previous year. That was partly attributed to the massive Crossrail project, but of the 88 people who joined the £100k ranks in 2014/15 only 1 is working for Crossrail.

TfL staff earning over £100,000
2012/13 2013/14 2014/15
TfL 298 326 413
Crossrail project 30 40 41
Total 328 366 454

TfL says that the 413 includes 59 staff who received severance payments of more than £100,000 as part of it “efficiency savings”. There were also 91 staff who clocked up overtime to push their earnings over £100,000. TfL says their overtime was necessary as they are highly specialised engineers and project staff.

According to TfL the payments are a consequence of a massive modernisation programme that is underway to deliver faster and more reliable services. This includes replacing tracks and upgrading stations and signaling.

The boss of TfL, Sir Paul Hendy, saw his basic salary frozen. According to last year’s annual report he earns £331,357. He is eligible for a bonus of up to 50% of salary. This year he has taken £145,000 in bonus, that’s 87% of his entitlement, in line with TfL rate of delivery against its targets.

Source data

See also

Traffic constant, profits up – a congestion charge story