Landlords putting the brakes on rent rises

Modern flats

The rise in London rental prices is slowing down.

In a bit of good news for tenants and bad news for private landlords, figures from the Office for National Statistics show that rents in London are now rising slower than the average for the rest of England.

In the 12 month to the March this year rents in the capital had gone up by 1.6% compared to 2.4% across the rest of England, according to data from the ONS Index of Private Housing Rental Prices. This is in line with a trend in the year-on-year figures since November last year when London slipped behind average rise for the rest of country.

Before August 2015,  London rental prices were rising much faster than elsewhere.

rent rise march 2017

A regional breakdown of the data shows that the 1.6% rate of increase in London is the same as Yorkshire and Humberside. Rents in five other regions of the England are now climbing faster than the capital.  This includes the East and West Midlands, East of England, the South West and the South East. The increase in the South East over the period was 3.4%.

The Royal Institute of Chartered Surveyors (RICS) says that the demand for rental property across the country remains steady but the number of new landlords instructing letting agents is down for the sixth month in a row.  This may increase pressure on prices, but RICS says that London is the exception to this. In its most recent monthly survey of the residential property market  it says that rents will continue to ‘soften’ in coming months and then remain broadly static for the year ahead.

While that may be a welcome forecast for more than a quarter of Londoners who rent their homes from private landlords, the amount they pay each month is still more than double the average for the rest of the UK.

Source data

See also

What you need to know about renting in London

Families face the biggest premiums for renting homes in the capital

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

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.

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

Researchers predict London on verge of property price bubble

By JaneArt (Own work) [CC BY-SA 3.0 (http-::creativecommons.org:licenses:by-sa:3.0) or GFDL (http-::www.gnu.org:copyleft:fdl.html)], via Wikimedia Commons-1

Photo by JaneArt (CC BY-SA 3.00)

The London housing market may be entering an “exuberant” phase. This sounds rather exciting until you realise it means that the capital is on the verge of another property price bubble.

Academics at Lancaster University say that the continuing surge in house prices will mean a property bubble by 2017. The last time this happened was at the end of 2007 and it was followed by a price crash when the bubble burst.

Prices in London grew by 11% in the last 12 months. With growth of 2.75% each quarter prices are heading towards what the researchers from the Management School at Lancaster University have called “exuberance’. A bubble of overpriced property will develop if this continues for 18 months.

In their UK Housing Observatory report they say that this could have a ripple effect across the country.   And when the bubble bursts those who bought with big mortgages may be left in negative equity with the value of the loan higher than the value of the property.


See also

London house prices more than 100% higher than rest of UK

House price rises fuel affordability crisis for Londoners

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


The team at Lancaster uses a statistical analysis to draw up a ratio between property price and disposable income, which they say is now reaching a critical level. They use property price data from the Nationwide and the cost of living survey by the Office for National Statistics.

They say that tracking the ratio can give an early warning to policy makers.

UK Housing Market Observatory

Majority of the 50,000 second homes are in 4 central boroughs

Kensington Chelsea-2Nearly 50,000 properties in London are designated as second homes and lie empty for much of the time.

The figures are revealed in the Council Tax listings and show more than half of the second homes are in just 4 areas – Kensington and Chelsea, Westminster, Camden and Tower Hamlets.

In Kensington and Chelsea around 1 in 10 dwellings is defined as a second home. Westminster has 6075, or 5% of its housing and there’s a similar proportion in Camden and Tower Hamlets.

Second homes

The highest proportion is in the City of London where 32% of properties are second homes. And outer boroughs such as Enfield, Hillingdon, Hounslow and Merton have over 1,000.

A second home is defined for Council Tax purposes as one that is not the main residence and used for a limited time during the course of a year.

The idea of a pied-a-terre for those living outside the capital with the wealth to afford a small London base is long established. But there’s concern that overseas property buyers are now fuelling the market, purchasing homes as an investment and happy to leave them empty.

This has an impact on the property market, increasing demand, pushing up prices, and contributing to the crisis of cost and affordability in the London.

Source data

See also

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

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

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

 

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

 

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

cityscape b&WHome ownership and property rental in London are reverting to the patterns of the 1970s as fewer people can afford to buy a house and more rely on the private rental market to put a roof over their heads.

Owning your own home is a long held aspiration for millions of people and has been far more commonplace in the UK than in continental Europe, where long-term rental is a more regular housing decision. The desire to buy was fuelled by the property boom 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 resembles London in the 70s.

After climbing to its peak in the 90s owner-occupation had fallen to 50% by 2011. And the squeeze on social housing due to the reduced amount of council housing stock has meant an expansion in the private rental market last seen on this scale in the mid 70s.

Housing tenure type

The profile of private renters is also changing. For years this has been the housing choice of singles and young couples. Increasingly it is the choice for families. A third of the private rental households in London in 2011 had children. 10 years earlier it was just 20%.

Housing tenure profile

This growth of private rental is also being driven by migration, both national and international. The Labour Force Survey in 2014 revealed that 80% of those who have recently moved to London from abroad, and 70% who have moved from other parts of UK, are in private rent homes. This may be a reflection of a temporary decision to move to London to work rather than to settle, but it also reflects the affordability of home ownership in the capital.

The desire to buy appears to be still strong. The English Housing Survey data on resident’s level of satisfaction with their home and the way they have obtained it reveals that 80% of those in private rental were happy with the accommodation, but far fewer where happy about being in the private rental sector.

Housing tenure satisfaction

While the economic circumstances do not make owning a home an option for many, these survey responses indicate a desire to do so, which is perhaps deeply imbedded in the UK culture.

Source data

See also

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

Families face the biggest premiums for renting homes in the capital

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