Generation Rent in London is facing a Tube Map of trouble and woe

There appear to have been some changes in the Financial Times Money section which seems to have something of a road to Damascus moment. Let me show the headline.

London’s overheating property market and lack of affordable housing is endangering its competitiveness

Okay so what has driven this? Well this map of monthly rents for a one bedroom flat from Find Property has driven this.

It does expand if clicked on but in case you have difficulty seeing it then I have put a link below where you can magnify the picture.

https://www.thrillist.com/lifestyle/london/london-underground-rent-map

What do we learn?

Let us first check through the definitions where monthly in fact means every four weeks so the numbers are in fact even higher than you may first have thought. The detail is below.

The median price is calculated using the prices of currently available properties within a 1km radius of the station.

The extremes are Hyde Park Corner which blasts in at £2920 per month and the eastern end of the District Line at Elm Park for £552 a month. In other words the vast majority of even one bedroom flats look rather unaffordable especially if we remind ourselves of average wages in the UK.

average total pay (including bonuses) for employees in Great Britain was £496 per week before tax and other deductions from pay

Those in the finance sector pull the number higher in London but even £637 per week can look a bit thin compared to some of the rents especially if we recall that they are for one bedroomed properties.

On the issue of one bedroom properties then one in Clapham so not far from me has been attracting some headlines and you will soon see why. Apologies for the implied profanity

I have literally just been shown a bed under the stairs for £500 a month. F you London! !?

In a situation like this there is always a danger that this individual instance is a spoof or PR spin but it has hit a chord. Back in the day (just over 20 years ago) I paid £300 per month for a double-bedroom when I flat-shared in Clapham.

What does the Financial Times tell us?

Crunching the numbers poses more than a few questions about how people afford this.

Barring these and a few others, for the 250-odd Tube stations in London, only a quarter have one bedroom flats costing £1,000 a month or less to rent. As you might expect, these locations are all concentrated at the extremities of lines, meaning a long journey and £225 a month for a zones 1-6 Travelcard.

So if you save on renting costs you find yourself adding to your travel costs and of course start to spend an increasing portion of your day  commuting. Some of the London Tube lines are rather slow for longer journeys as the lack the express trains that New York has for example.If you are Mr or Ms Average then this is what you face.

Across the capital, the average rent for a one-bedroom flat within walking distance of a Tube station works out to £1,327.

Even if you are a worker in the finance industry we are looking at around half your wages and of course they are before tax whereas the rent is actually paid out of post tax income. Time for some Lunch Money Lewis.

I got bills
I gotta pay
So I’m gon’ work, work, work every day

Rather oddly Dido was rather prescient if very harsh on the subject, who would have thought it back in 2003?

But if my life is for rent and I don’t learn to buy
Well I deserve nothing more than I get
Cos nothing I have is truly mine.

We do get a bit of cheerleading for the Buy-To Let industry.

Buy-to-let landlords reading this column should congratulate themselves for having made a great investment.

Actually I do not wish anyone who rents – well apart from the Rackmans and their ilk – any ill as they provide housing and people require that. My issue is the way that it is organised in the UK where the whole economy is tilted towards it and the issue of us being increasingly a rentier style society. Whilst I welcome the removal of some of the tax breaks I also worry that landlords may have made so much money by then they may just shrug it off. Also the situation can get very messy.

 In a further sign that the London housing market is out of control, I received a worrying report last week from a friend who is renting out her two-bed flat. It turns out that it has been illegally partitioned to create four single bedrooms, and sublet on the black market for nearly double the rent.

Rentier squared?!

For those subject to this there is of course Gwen Guthrie.

Cause aint nothin goin on but the rent
You got to have a J O B if you wanna be with me
Aint nothin goin on but the rent
You got to have a J O B if you wanna be with me

Still the author of the article is okay at least.

However, I suspect the reason it has spread like wildfire online is that there are many owners of flats — myself included — who are looking at these crazy rents and smugly thinking “thank goodness I got on the property ladder when I did”. And possibly, quite a few buy-to-let landlords are thinking: “Hmmm, I’m clearly not charging enough.”

Employers are having to respond

I wrote a month or so ago that Deloittes was responding by helping some of its graduate employees and that trend seems to be spreading.

Last week, the coffee chain Starbucks offered to lend its workers up to £1,000 interest free as a rental deposit (a figure this map shows will only be of use if they live in the capital’s outer suburbs).

Will companies end up going back to the old model established in the past by Cadburys amongst others where housing was provided in a social as well as a business model?

Comment

The obvious point is how can London rents be unaffordable and a shock when there is no inflation according to the official numbers!? With rising wages and inflation being pretty much 0% in 2015 how can things have got worse? It gives me a wry smile to see the Financial Times reporting problems because if you point out the omission of many housing costs from the official CPI measure means that RPI which has a wider housing remit has an advantage you get a gaggle of FT journalist forming up war party on Twitter against you.

I have written many times that the UK needs to put wider measures of housing costs in its official inflation measure so for today let me give you some numbers. Here is rental inflation from LSL for England and Wales.

Annual pace of rental growth tempers to 5.5% over the last twelve months, down from 6.8% in July.

The monthly numbers fluctuate but you get the idea that there is inflation which goes missing in the official measure where rents are rising at 2.9% and owner occupied housing costs are doing this.

The OOH component annual rate is 1.8%, unchanged from last month.

Oh and if you throw in the appearance of black-market subletting the possible inflation rate shoots upwards. Another factor which gets little media space is the fact that the quality of housing appears to be in decline with smaller rooms ( i did read that bedrooms have been shrinking by 0.3% per annum but now can find the link…) and houses/flats. This is of course something of an irony as we get larger via the obesity crisis. We need a sort of reverse hedonics for this.

Also if we wanted the Governor of the Bank of England to take a real interest in the situation we should not have done this. From the 2015 Annual Report.

Mr Carney receives, as was announced on his appointment, an annual accommodation allowance of £250,000p.a., to reflect the additional cost of living in London rather than in Ottawa.

I will leave the last word to The Professor who has the most recommeneded comment on the FT article.

My daughter earns £18k before tax in what should be a graduate career job, and pays £800 a month in rent. Do the maths. There is a generation of parents out there who would quite like to see a property crash that would make life affordable for their grown up children, even if they’d take some of the pain themselves.

Amen Professor!

Here is a link to the FT but there is a paywall.

http://www.ft.com/cms/s/0/28e1d3aa-66ac-11e5-97d0-1456a776a4f5.html#ixzz3nJBg22BR

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40 thoughts on “Generation Rent in London is facing a Tube Map of trouble and woe

  1. Hi Shaun

    I think the FT understates the problem by saying that high rents threaten London’s competitive position: it actually threatens its existence.

    Most people who work in London are not bankers or oligarchs (do oligarchs work?); they are baristas or waiters or shop assistants. How can such people even begin to afford such rents? Of course they can’t and this bodes ill for London, which, however much many look on it with disdain, is still a pivotal aspect of the UK and its economy.

    As you say we are perhaps in the final transition to a rentier society where all economic activity consists in finding the greater fool and conning them out of their money.

    • Hi Bob J

      I suspect that most oligarchs believe that they work, whether we believe that they do is quite another matter! Your point about those with jobs which are not highly paid is well made and poses plenty of questions.

      Is this a new type of underclass?

      Exactly how are they living and is there what we in other areas would call poverty and squalor? There certainly do seem to be elements of it.

    • “where all economic activity consists in finding the greater fool and conning them out of their money.” – ever twas thus in a capitalist society no matter what is being sold or rented.

  2. Good post. Basically we need to help the 11 Million UK Private Renters by having longer tenancies (we currently have Europe’s shortest at 6 months) with rents linked by inflation. This will also help First Time Buyers, as well as private renters, by disincentivising potential Buy to Let landlords as well as helping renters saving up for a deposit. Simple maths dictates that the less people who own multiple homes means more of us that can own one home of our own.

    • Hi Toffer and welcome to this website

      I support moves to give tenants more security and legal rights. However the real issue that twists the market is the equivalent of the “Greenspan Put” which has grown up for most of the UK’s property and particularly London. You buy and then rent and maybe make a bit but when you sell you make a good profits and sometimes an extraordinary one.

      I do not wish owners any ill but a one-way market driven by, Bank Rate Cuts, QE,FLS, Help To Buy is not healthy. On a more personal level I bought my first property in the 1992 dip which gave me a chance to buy and future buyers should also have their time rather thn just watching prices accelerating away.

  3. Hi Shaun

    Great article as always. Thats one of the reasons we left London. A two bed flat in willesden green cost around 300k-350k. But if you ever wanted to upgrade to a three bed semi, then it was around 700k – 800k. That was in 2012, its probably a lot worse now.

    Moved oop north to Manchester and never looked back. Although I am concerned that Manchester is becoming little London. When you get places like this:

    http://tinyurl.com/qytkjnj

    thanks

    • Hi Anteos and thanks for the link.

      Oh dear is Manchester the new London? Another possible bubble….

      The sellers might like to consider that “German engineered kitchen” does not have quite the cachet it used to!

  4. A truly crazy situation when you have people paying £500 pm to sleep under the stairs and whole blocks of newly built flats empty as sold to overseas investors who BTL (Buy to Leave).

    By the way the £500 bed made it to zerohedge today which is an American website so London rental property must be in a league of it’s own for it to get a mention.

    • Agreed we need to combat both Buy to Leave and Buy to Let. Buy to Let as described in my comment above. By to Leave by updating our Council Tax bands set in 1991 so that global overseas investors only pay £1,400 or so property tax on their million pound properties as opposed to tens of hundreds of thousands of pounds of property taxes in other global ciites

      http://www.cnbc.com/2014/06/03/top-10-property-taxpayers-in-the-new-york-area.html

      http://otr.cfo.dc.gov/page/real-property-tax-rates

        • Hi Forbin, the form of wealth tax I prefer is property tax, because property cannot be moved to an offshore tax haven. It’ll also stop the overseas Buy to Leave investors snapping up luxury flats and leaving them empty that could have been filled by Londoners. See the Buy to Leave section of my website if you want further details – http://rentersrightsuk.org/filling-empty-homes/ – Thanks

        • Hi Forbin

          When it comes to taxation property is very lightly taxed when compared to other asset classes. A LVT or Capital Gain tax over a certain limit on primary residence would be appropriate.

          I’ll leave you with this article about the amount of tax paid on a BTL capital sale of 127k:

          http://www.theguardian.com/money/2014/feb/12/how-calculate-capital-gains-tax-sell-home

          And as most mp’s are beneficiaries of second homes or BTL portfolios, you can bet it won’t change soon.

        • True Forbin most mp’s are beneficiaries of second homes and/or BTL portfolios which is why I’m trying to raise public awareness of the vested interests that are preventing us from solving our housing crisis

        • It’s reasonable to charge the owner full council tax, whether the property is occupied or not. I’d also remove council tax assistance for large, underoccupied properties – that is an incentive for the empty nest pensioneers to rightsize their living space.
          I’d suggest both measures are clampdowns on tax avoidance.

        • Expat:
          Some people have, what are called, homes.
          They have emotional attachment to these buildings, as places where they built fond memories over decades, where they saw their children grow up, and, because they know and trust the neighbours, have a social attachment to the buildings to.
          Add in the huge amount of work and stress, not only in leaving one home, but fitting another to your taste, and you have huge disincentives to move, especially in later life.
          That is why the bedroom tax is evil.

          That is not to say that those of us who up-sticks and move to different climes, for whatever reason are wrong to do so, just that, for many, there are serious emotional tugs to the place where we live.

        • buzzin: capping council tax benefit helps the working poor. Why should a young working family cramped in a small flat be paying the bills of retired people in mansions ? is it fair ?

          Those in power have to make tough decisions on where to spread limtied resources. The philosophy of unlimited wealth has been tried before and it didn’t make Zimbabweans rich, nor Venezualans nor anywhere else I’m aware of. Given the pain of the 1970s in the UK, it seems that too many Brits have short memories.

          But hey, elect lying populists who promise jam – I don’t care coz I ain’t paying their 60% and higher taxes and I’m not there to feel the pain if it crashes

  5. Generation rabbit

    Living in a box: The desperate workers forced to live in tiny ‘coffin’ apartments of Tokyo – which still cost up to £400 a month to rent

    So who’s gonna build these things here ?

    soon I expect , seen Hong Kong ?

    to beat a dead horse Shaun , the Banks need ever increasing house prices to stay solvent, the government needs it too , to stay solvent ( sort of ) . The house buildrers need it to stay in business as land is not being made anymore ….

    And we can fit 500 million into the SE England …..

    but would you want to live here when it is?

    Forbin

    • Hi Forbin

      I was going to reply with the Living in a Box song but I see that therrawbuzzin has beaten me to it. The future you pose is like one of those science fiction nightmares isn’t it? Like the world of BladeRunner for example or more chillingly Soylent Green.

  6. Great column, Shaun, as usual. Fortunately, I have an online subscription to FT so could get past the paywall and read that somewhat depressing article.
    On a totally different topic the July GDP estimates for Canada were published yesterday, the last update that will emerge before the October 19 Canadian election. The growth rate was 0.3%, and July GDP would have been at or above its December 2014 peak were it not for a downward revision in June growth from 0.5% to 0.4%. Nevertheless, it is highly probable that August was the last month of recovery for the Canadian economy. It took us three months to recover from a five-month contraction and today we started our second month of expansion.
    At an annualized rate the economy grew at a 4.8% rate in June and July. This was due in part to special factors like production in oil facilities resuming after maintenance shutdowns that will not be repeated going forward. Growth at this rate is unsustainable as Canada is not China or India. Nevertheless, it will give you some idea of the vindictiveness of the Canadian Broadcasting Corporation towards the Conservative government in power that this was actually described on the show “Power & Politics” last night by host Roseanne Barton as “some modest growth” and “not huge growth”.
    The Parliamentary Budget Officer, at the request of the Opposition NDP and Liberal Finance critics, did a tabulation that showed the Department of Finance’s budget estimate of a $1.4 billion surplus for 2015-6 would be a $1 billion deficit using revised Bank of Canada estimates for real GDP growth and other minor adjustments, i.e. the budget balance would go from 0.1% of GDP to -0.0% of GDP. Now it is looking like the Bank of Canada estimate for 2015Q3 growth of 1.5%, and the DOF estimate of 2.0% were both pessimistic, and with the bounce back from the contraction, 2015Q3 growth may well be 3.0%. The budget balance may be a lighter shade of -0.0% of GDP, or even +0.0%. You may not think this kind of a debate could arouse much interest, but it makes people’s blood boil here.

    • I hear some vicious critism of Stanishev & his previous deficit, the worst part was we had zero visible infrastructure gains from his odd coalition of communists, Fascists and ethnic Turk party. Bulgarians care about fiscal stability. I read a report predicting Borisov’s centre right party will achieve a modest surplus this year.

  7. ‘The obvious point is how can London rents be unaffordable and a shock when there is no inflation according to the official numbers.’

    Absolutely…..what depresses me is that this view is considered obscure by so many of the MSM commentariat.

    Am over in NYC at the mo and let me tell your position here is as bad as London .

    I’ve had some fascinating chats here with various people and the comparisons with the U.K. a are strong.Mortgage constraints higher up the chains,people moaning about a lack of 95% loans restraining liquidity,houses sat on the markets for ages……cut the price non….?……loads of condos being knocked up in Brooklyn as well as Manhattan.the strangest thing was the Tour guide who did the corporate boat ride was surprisingly incorporate in her views on the housing situation in NYC.she was like a US version of your commenters Shaun.There are people here buying one million dollar two bed pads that have views of a brick wall…..unbelievable…what bubble.the USA is as screwed as it was in 2008 in my opinion.

    The cranes in SW 8 are nothing in comparison

    • Hi Dutch

      What is it about capital cities? I know it is really Washington but a bit like Australia the US has a numero uno city that is treated as a capital in terms of house buyers and prices.

      I need to take a deeper look but I gather that there is quite a rental bubble in San Francisco too.

    • Dutch – “the USA is as screwed as it was in 2008 in my opinion.” in the main cities yes but not every where else and only 35% of Americans live in main cities.

      I have family and friends over there and there’s no problem. My brother is a btl merchant in Colorado – just picked up a 1700 sqaure foot single storey centrally heated, air conditioned (proper air conditioning not the cheap “swamp coolers” they also have) double glazed double garage house fo $200,000!!!!! (that’s approx £135000) and I congratulated him on the deal of the century. His reply was that he had paid over the odds for it but preferred but as it was in a good area near good schools and would be easier to rent out!!!

      Prices are similar in Minneapolis, Buffalo, Milwaukee and Cleveland, (where various family/friends live) although they told me about hotspots in Washington DC, Denver, Dallas and as Shaun says San Francisco and now it seems by a long way New York and no one I know wants to live there because of the hectic life style, poor supply times for goods purchased and crime level!!!

  8. Some alternate maths, 250 euro per month for a nice new 1 bed flat in Sofia (average is more like 300). Not good for teachers on 250 euro, but easily affordable for call centre workers on 750 or IT specialists on 2000 euro.

      • Many state institutions are hugely overstaffed here – and in the 1990s they were nearly the only places offering stable employment. They’re also badly underpaid, at least officially. I’d guess some do well on bribes – if their cars and holidays are anything to judge on. System needs reform and right-sizing.

        When communism admitted it’s bankruptcy, Bulgarians got given the apartments/houses they lived in. So mortgages are rare. Outside Sofia / desirable coastal spots, land is very cheap and planning permission is possible. Most teachers are 45+ and living in homes owned outright. Demographics meant few new teachers have been needed – soon to be David Bowie’s “Changes”

        We tried to get our children into a prestigious Sofia maths school. They sat a test, and weren’t accepted. Then 1 of my sons got a top 50 result in a junior national math contest – beating that year’s ENTIRE CLASS of the math school. I prefer to openly pay a private school …..

        At my local lunch restaurant I hear lots of young Europeans (Dutch, Spanish, Greeks, French & Germans) who appreciate Sofia’s opportunities and low costs. In my IT company the average age is 31 & I was coding commercial software before the Berlin wall fell in 1989 …

        The conundrum is that there are jobs for educated people, if their schooling is good enough. Our predicted surplus is supposedly due to employment gains / larger employment tax receipts.

  9. I’ve got a few btl’s that my business partner and myself have brought, these are our pension. I don’t feel guilty about them, we both work seven days a week up to 16 hours a day, and when I retire it’ll be nice to reap the benefit’s. What always did baffle me, was that when my wife and I came to move house because of a growing family. It was easier to raise the funds by using our existing home as a BTL than being forced to sell the old one to purchase the new. So we became landlords by default, I know that the properties that I own will give my kids a foot on the property ladder eventually, but with university debt’s and ever increasing house prices they’ll be the exception rather than the norm. I look back at my parents generation, leaving home at 19-21 married and kids and home by the time they were 25, retirement in mid to late fifties (depending on jobs and opportunity) and know that’ll never happen for future generations. They’ll instead see the threat of automation of most jobs, resulting in either high unemployment, of a drift towards a society where we have more artisans and growing counterculture along with an untouchable elite.

    • Hi Mark and welcome to the comments section

      It is all quite a mess isn’t it? I am intrigued by this “It was easier to raise the funds by using our existing home as a BTL than being forced to sell the old one to purchase the new.” Do you mind elaborating please as it seems rather extraordinary?

      Actually as I peruse the news we often have an untouchable elite right now.

      Oh and thanks for not mentioning the rugby. You may be amused to read that on Monday I am doing an interview for an Australian radio station about Portugal’s economy. It will either be very good or very bad timing!

      • Hi Shaun, I suspect Mark has placed the previous “family home” inside a company or declared it a btl property which would then entitle him to another domestic mortgage with the Bank deciding that the previous home (now a btl) has no direct call on him should mortgage payments not be maintained on it, thus he is treated as a “first time buyer” i.e. he does not officially “own” a house and therefore has no responsibility for any mortgage at the time he applies for a mortgage for his next domestic “home”.

  10. Hi Shaun,

    I imagine a future where the large employers will simply bus in workers from huge accommodation blocks to keep the essential services used by the city going. It’s quite depressing that the basic requirement for shelter has morphed into a cold, hard financial investment.

    • Hi Zummerzetman

      As I have replied earlier it used to be part of some business models to provide social housing for workers. If we head that way again I fear something out of a dystopian science fiction nightmare

    • That huge accommodation block is Birmingham, thus my HS2 post.
      Politicians are lying in their teeth when they say that the purpose of HS2 is to help develop the North of England.
      Its purpose is to broaden the event horizon of the dark star.

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