Londoners are spending a record 28 per cent of their income on housing – an increase over the last 20 years equivalent to a 13p increase in basic rate tax for a typical family – according to new analysis published today (Tuesday) by the Resolution Foundation.
The analysis, which tracks the share of income working age households spend on housing, shows that in the mid-90s the average household in London spent around 21 per cent of their income on housing. But a wedge opened up in recent decades as a result of rising housing costs continually outpacing income growth. This peaked on the eve of the financial crash, by which time households in the capital spent over a quarter (27 per cent) of their income on housing.
The wedge between incomes and housing costs then shrank in the wake of the crash as interest rates were cut to record lows. For many households this fall helped soften the post-crash living standards squeeze by reducing mortgage costs.
However, with housing costs in the capital rising sharply again, Londoners are now spending a record share of their money on paying rent, mortgages and service charges. Recent increases in housing costs have caused typical London households to experience the biggest post-crash fall in disposable incomes anywhere in the UK.
More than three in ten Londoners (31 per cent) are now spending over a third of their income on housing – a perilously high amount that the Foundation warns risks damaging living standards and creating huge financial insecurity.
The impact of rising housing costs has been particularly acute for those on low to middle incomes in London, who are spending almost two-fifths (38 per cent) of their income on housing.
The Foundation notes that rising housing costs – and house prices in particular – have caused a dramatic shift in the housing composition of the capital. Its analysis shows that Londoners are now more likely to rent privately than own a home with a mortgage, while low to middle income households are more than twice as likely to rent in the private or social sector (60%) as they are to own a mortgage (29%).
The Foundation says that for millions of Londoners housing is now the key living standards challenge they face. It says that action to tackle spiralling housing costs for both mortgage owners and renters should be a top priority for the next London mayor, and welcomes the focus on housing during the election campaign.
Lindsay Judge, Senior Policy Analyst at the Resolution Foundation said:
“Londoners have long spent more on housing than anywhere else in the country. But the share of their income going on housing has now hit record levels, and is putting living standards across the capital under strain.
“Sky high prices have already created ‘generation rent’. And unless spiralling costs are brought back under control London could eventually become a City of renters, with home ownership a distant dream for all but the wealthy.
“London’s housing crisis can be solved and it’s encouraging to see that it’s the key battleground in the upcoming Mayoral election. Tackling London’s housing affordability problems – both by increasing supply and offering more help to the capital’s growing army of renters – should be a top priority for both City Hall and Whitehall.”