Londoners are spending 40% of their income on rent as prices spiral

LONDON — Londoners are seeing 40% of their income swallowed by rent as house prices in the capital spiral, according to the Institute for Fiscal Studies.

A new IFS report found the rent-to-income ratio in Britain excluding London has fallen by 3% — from 31% to 28% — in the last twenty years, but climbed by 3% — from 37% to 40% — in London over the same period.

Median percentage of income spent on rent among private renters

IFS (Authors’ calculations using the Family Resources Survey, various years.)

The growing rent-to-income ratio in London has been driven by rapidly-increasing rent prices in a market where house prices grew by 66% between 2007 and 2017:

Median weekly private rents (adjusted for inflation)

IFS

The chart shows that London rents increased by 38% between 1994-1996 and 2001-2003, alongside a much smaller 12% in the rest of the UK. Following a period between 2001-2003 and 2008-2010 where real rents flatlined, rents in London began to grow fast again, increasing by 11% while they fell by 4% in the rest of the UK.

“Renters are paying considerably more for their homes than 20 years ago,” said the report.

“Relative to the general price level, the average (median) private rent paid in the mid 2010s was 53% higher than that in the mid-1990s in London and 29% higher in the rest of Britain. Those rises mainly occurred in the late 1990s and early 2000s (in London) or in the early and mid 2000s (in the rest of Britain).”

Rent caps and Help-to-Buy

The chronic shortage of UK housing is currently an important political issue. Labour leader Jeremy Corbyn last week pledged to introduce rent caps if he becomes prime minister, and Theresa May pledged a further £10 billion for the government’s Help-to-Buy scheme which helps first-time buyers to purchase homes.

A Savills report published earlier in October also found that growing rents and a sharp rise in the number of people renting homes means private landlords are earning ever-increasing sums from renters, and deepening a financial division between those who own a home and those who don’t.

Savills said landlords earned £54 billion in the year to June — twice the total amount of interest homeowners paid on their mortgages, who currently benefit from record-low interest rates.

The private rental figure was up by £14 billion in five years, a 35% increase from a 21% rise in the number of homes.