London has always been known for its vibrant culture, bustling streets, and diverse population. However, in recent years, the city has also become infamous for its skyrocketing rental prices, leaving many people struggling to find affordable accommodation. A recent article in the Standard discusses possible actions to be taken to address the unaffordability of the London housing market in the wake of the 2023 budget. This issue has been compounded by the fact that landlords are being pushed out due to increased regulations and costs, resulting in a shortage of available rental properties.
Key Points:
Rents in London have gone up by £262 or 13.8% to £2,161 in the year to February 2023 - Hamptons.
Small private landlords are selling up at their fastest rate for four years.
In 2019 an individual first-time buyer needed an income of £64,010 to buy a house with a 10 per cent deposit in London. This has rocketed to £97,308 — amounting to a pay rise of 34 per cent in four years, according to Hamptons.
Owning a home is cheaper than renting a similar home, but only just.
What's the problem?
After the pandemic, students came back to their desks and professionals back to their offices. The sudden surge in people looking to rent way outstrip the supply of rental homes available in the big city. But, we could have seen this coming and the problem was going to become as severe as it is today anyway. It was bound to happen.
As explained in her article on the Evening Standard, Anna White mentions why this is the case. “Between 1959 and 1988 approximately 7.5 million homes were built [in Britain], whereas only 3.3 million have been built in the last 30 years. That is a shortfall of 3.1 million homes,” says Paul Cheshire, professor emeritus of economic geography at the London School of Economics in the article.
JLL forecast a shortage of more than 100,000 rental homes over the next decade.
This could be a result of restrictions and limitations placed in London.
The 1955 green belt placed to control the urbanisation of London’s surroundings.
Height restrictions across much of London - for example, there 13 protected sightlines in St Paul’s.
A slow and uncertain planning system that deters developers
Minimal interest rate relief, high mortgage rates and taxes has pushed smaller landlords out of the property scene and allowed bigger firms to take over
More and more landlords are selling while more and more tenants are staying put. "Those landlords who do buy will need to put down bigger deposits, limiting buy-to-let to those with the deepest pockets." as mentioned by Hamptons.
About rentals
Rents in Greater London have grown 13.8% since February 2022, taking the average from £1,899 to £2,161.
For a lone tenant occupying an entire unit, this equates to an average of 64% of their income as indicated by Hamptons in their research.
Smaller homes are seeing the biggest rent rises, where the average one-bed rent increased by 13%YoY and while the average three-bed rent rose by 8.7%.
Furthermore, according to Lloyds on a report from Halifax it is cheaper to own a home than renting a similar one.
Monthly cost of owning a home £42 cheaper than renting the equivalent.
Difference greatest in London, where homeowners are paying nearly £3,000 less each year than those renting similar homes.
The analysis, which is based on housing costs for first-time buyers with a mortgage on a three-bed home compared to the average monthly rent of the same property type, found that the £971 owners are now paying, compares to £1,013 for renters, each month.
With demand for housing continuing to rise, it seems that the unaffordability of London rental prices will continue to be a pressing issue for the foreseeable future.