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.

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

 

Half the city’s homes are flats but London is low in the high-rise stakes

Council Housing Thamesmead“An Englishman’s home is his castle” is an age-old adage but in London there’s a good chance that castle might be divided into a number of little towers.

Half the homes in London are not single houses but flats within larger buildings, whereas in England 80% of homes are single dwellings.

The data on housing stock reveals that London has about the same proportion homes in terraced houses as the country as a whole. But it has a much smaller proportion of semi-detached houses, and an even smaller proportion of households are in detached houses and bungalows, just 6% in the city.

housing stock by type london englang

Converted houses and re-purposed warehouses make up about at third of the flats in the capital while the remaining two thirds are purpose built.

But despite this prevalence of flats in the housing stock, London is far from being a city of high-rise living compared to other capitals globally.

Just 14% of homes are in buildings higher than 5 stories (the official classification for high-rise). In Tokyo it is more than double that, in New York over 3 times, and the tall classical buildings of European capitals mean that around 60% of the homes in Madrid and Paris are in high-rise dwellings.

housing stock flats global

Source data

See also

Renting in London: 1 bedroom homes

Renting in London: A Studio

Tower Hamlets leads the way for London’s greener homes

Renting in London: 3 bedroom homes

The additional cost of living in London for a family seeking a 3 bedroom house is punishing. As previously reported by Urbs, the premium charged is at its highest for this size of property, 150% above median rent for England.

Renting 3 bed

The nature of the housing stock in different parts of the city becomes more apparent in the map for this size of property. There is no data for the City as it has so little of this sort of housing. Kensington and Chelsea does have supply of medium sized homes, but at a huge premium, more than 3 times the median rent.

The inner boroughs and the leafier neighbourhood of Richmond can command rents in excess of £2,000 a month. Further out in boroughs like Harrow and Merton prices drop to around £1,500

Rental 3 bed map

Data from the Valuation Office Agency, the body that advises the government on property values, shows that it is only in the 3 most easterly boroughs that median monthly rental is at £1,200 and below.

Source data

More on Renting in London

Families face the biggest premiums for renting homes in the capital

terrace on hil-2The punishing premium on private rents in the capital is more severe for families who need 2 or 3 bedrooms. Rents for 1-bedroom properties are more than double in London but for those with children as well as themselves to house, a home may cost 150% more to rent.

Urbs analysed the latest data from the Valuation Agency Office, a body that advises the government on property prices, to look at the cost of different types of rental property in London.

We looked at median prices to iron out the highs and lows that affect averages.

Median Monthly Rental
London England
Room only £525 £341
Studio £850 £500
1 Bedroom £1,155 £525
2 Bedroom £1,400 £595
3 Bedroom £1,695 £675
4+ Bedroom £2,500 £1,175

The premium paid for renting in the capital is significant for all types but highest for medium size flats and houses.

Rental private premium

The most expensive region outside of London is the commuter area of the South East. Comparing the median rate for all properties the monthly cost in the South East is £779 but nearly double that at £1,350 in London.

But London itself see 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

Other data from the Office for National Statistics shows private rents continuing to rise. The Index of Private Housing Rental Prices, a quarterly index that tracks the prices paid for renting from private landlords shows a 4% rise between April and June 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. The 4% rent inflation is a return to the higher levels of 2013 after less steep rises in 2014.

monthly rental

The last dip in rent inflation was in 2010. Since then prices have risen steadily with rises in London at least double the rate in the rest of England.

The affordability of property means home ownership is beyond the means of many in the capital and renting in the private sector is the only option. As previously reported by Urbs, there is a growing concern than many younger people will never be able to save enough for a deposit to buy a property in the capital and they are becoming a so-called ‘generation rent’.

Index of Private Housing Rental Prices

Valuation Office Agency

See also

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

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

Urban chic or leafy charm? Inner city rentals catch up with affluent areas