Housing crisis sucks billions of pounds out of London’s economy
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High rent and mortgage costs are costing London’s economy more than £1billion each year and reducing the number of jobs created by 11,000, undermining the capital’s status as a global centre of enterprise according to research.
The findings are part of a study carried out by the Centre for Economics and Business Research (CEBR) for Fifty Thousand Homes, a newly launched business-led campaign to double house building in London to at least 50,000 homes a year by 2020.
According to the report, Londoners are spending an ever higher proportion of their salaries on housing, which has risen significantly faster than average earnings. While average house prices rose by 45 per cent and average rents rose by 20 per cent between 2010 and 2015, average wages rose by only 5 per cent in the same period.
Spiralling housing costs are adding pressure to the finances not only of people on low-paid jobs but also to many working in traditionally well paid middle-class industries.
Baroness Jo Valentine, Chief Executive of London First, one of the business organisations that helped launch the campaign, said: “This needless housing shortage needs urgent action. If we carry on as things stand, in 10 years’ time London will be a no-go zone for employees across sectors and at almost all levels.”
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Workers on average salaries in hospitality, cleaning and admin roles would have to pay their entire pre-tax salary to rent an average home in London, while those in many other sectors must pay more than half of their wage. At the same time, commuting costs can make living elsewhere unfeasible.
Only company directors and finance workers would spend less than a third of their salaries on rent in inner London (deemed an ‘affordable’ ratio).
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The report points out that the effects of the housing crisis go beyond the impact on individuals’ finances and has a serious knock on effect on business and the economy.
The study estimates that uncontrolled housing costs remove £2.7billion a year in consumer spending from the economy, as people’s purchasing power is substantially reduced.
Meanwhile businesses based in the capital face a £5.4 billion wage premium, or £1,729 per person, this year in order to attract and retain staff that are being priced out of living in London.
The report estimates that 11,000 extra jobs could have been created this year without the impact of the housing costs on revenue and consumer spending.
Scott Corfe of CEBR, which conducted the research for Fifty Thousand Homes, said: “Our research shows that the housing crisis is resulting in substantial costs to businesses and risks undermining the capital’s position as a global centre of enterprise, talent and success.”
London is one of the least affordable cities in the world – after Hong Kong, Singapore and New York – with normal local rents more than three times higher than those in Berlin and double those of Dubai. Meanwhile Geneva and Zurich were found to be more affordable than London because of high average earnings in those cities.
Baroness Valentine said: “I want the next Mayor of London to wake up each morning thinking about how to increase housebuilding – because only doubling our current levels of housebuilding to 50,000 a year will we solve this crisis.”