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