More Evidence that First Time Buyers Can’t Afford to Live in London
Rather than spending their money on high rent prices or asking the bank of mum and dad for a loan, young people are spending their money on flights out of London.
According to London Stalling Report, Resolution Foundation report, more than 35,000 people in their early 30s have left London since 2009. The evidence suggest that the unrelenting expensive property prices are leading to lower living standards in the capital.
The same report found that the high cost of property subsequently results in the lowest relative salary. Before property prices, the median income in London is £28,600, but when housing costs are considered, the average income is £21,350, £900 less than the £22,250 across the UK.
Although there has been between 1 – 1.6 million population growth since 2009 and the London economy has grown by 17% since 2007, the growth is supported by low-paying jobs that require longer hours and greater numbers but does not represent higher productivity. The hospitality industry has risen by 35%, and has now become the largest sector, surpassing banking, in London. Administrative services positions are also up by 29%. Higher-paying, higher-productivity services has seen a decline in London, including ICT services down by 5% since 2007.
For a person who is in their mid-twenties, makes the median income and wants to be a first-time buyer, when they search the London market, they will find properties are 20 – 40 times their salary. With a £165,000 budget, you could purchase a 4-bedroom detached house in Glenluce, Scotland, or a 122-square foot Studio in West Hampstead, London with the kitchen, living and sleeping areas sharing the same space. This is imagining that somehow between student-debt, rent and lower real earnings, a first-time buyer managed to save a deposit.
If a buyer has bought a house since 2011, they have spent an average of 5 years saving a deposit of about £21,000, more than half the average UK household income. Roughly 50% had to borrow more than £10,000 of the deposit from family. A typical 20% deposit in London is now more than £80,000, £30,000 more than ten years ago, according to the Nationwide Building Society. For a typical buyer, this would take more than 10 years to save enough money.
Research from Keepmoat Homes revealed that 69% of people think it’s harder than ever to buy a home, and if you look at prices since 2000, they have risen by more than £55,000. However, it’s not just property prices that have changed, but also culture of young people and first-time buyers. In the 1960’s, more than 80% of first-time buyers were married, but in recent years that number is less than 30%. Furthermore, research has shown that 1 in 10 people who bought a property in the 1980’s are still living in their first home. .
The evidence does suggest that the housing market in London is cooling. However, with the job market becoming dominantly low-paying and low-productivity jobs, and the property is increasingly unaffordable for young people – especially single young people, London is becoming less attractive. The Government’s Help to Buy Scheme combined with the lowered rates of stamp duty for first-time buyers is helping many new buyers get on the ladder, but unfortunately most new help to buy properties are being built outside of London forcing many to re-locate outside the capital.