The words of Gwen Guthrie’s song are echoing this morning as the BBC seems to have discovered that renting in the UK has become very expensive. In particular it focuses on the impact on your people.
People in their 20s who want to rent a place for themselves face having to pay out an “unaffordable” amount in two-thirds of Britain, BBC research shows.
They face financial strain as average rents for a one-bedroom home eat up more than 30% of their typical salary in 65% of British postcode areas.
Many housing organisations regard spending more than a third of income on rent as unaffordable.
A salary of £51,200 is needed to “afford” to rent a one-bed London home.
How have we got here? There have been two main themes in the credit crunch era driving this of which the first has been the struggles of real wages. If we use the official data we see that setting the index at 100 in 2015 took them back to where they were in the summer of 2005 or a type of lost decade. In spite of the economy growing since then and employment numbers doing well we find that the latest number is a mere 101.7 showing so little growth. Even worse in an irony some of the growth is caused by the fact that our official statisticians use an inflation measure called CPIH which has consistently told us there is no inflation in rents.Oh Dear!
Added to this problem was a further impact on younger people from the credit crunch. We could do with an update but this from a paper by David Blanchflower and Stephen Manchin tells us what was true a few years ago.
The real wages of the typical (median) worker have fallen by around 8–10% – or around 2% a year behind inflation – since 2008. Such falls have occurred across the wage distribution, generating falls in living standards for most people, with the exception of those at the very top.
Some groups have been particularly hard hit, notably the young. Those aged 25 to 29 have seen real wage falls on the order of 12%; for those aged 18 to 24, there have been falls of over 15% (Gregg et al. 2014).
So younger people took a harder hit in real wage terms which will have made the rent squeeze worse. Hopefully recent rises in the minimum wage and looking ahead the planned rise from Amazon will help but overall we have gained little ground back since then.
Rents
Here is at least some of the state of play.
In London, a 20-something with a typical average income would spend 55% of their monthly earnings on a mid-range one-bedroom flat. Housing charity Shelter considers any more than 50% as “extremely unaffordable”.
That rises to 156%, so one-and-a-half times a typical salary, in one part of Westminster – the most expensive part of London – where an average one-bedroom home costs £3,500 a month to rent.
In contrast, a tenant aged 22-29 looking for a typical property of this kind in the Scottish district of Argyll and Bute would only have to spend 15% of their income.
Even to a Battersea boy like me that all seems rather London centric. Wasn’t the BBC supposed to have shifted on mass to Manchester? Perhaps it was only the sports section which has quite an obsession with United as otherwise no doubt we would have got an update on Manchester and its surrounds. Still Westminster is eye-watering and no doubt influenced by all MPs wanting somewhere close to Parliament. By contrast renting in Argyll and Bute is very cheap although the number of people there is not that great.
Mind you there is at least an oasis below for those who want a Manchester link.
This all comes at a time when young adults might look back in anger at previous generations
Still I guess they will have to roll with it or try to anesthetise any pain with cigarettes and alcohol.
Relativities
This provided some food for thought.
The BBC research shows that a private tenant in the UK typically spends more than 30% of their income on rent.
In 1980, UK private renters spent an average of 10% of their income on rent, or 14% in London.
So the amount spent has risen across the board and especially so in London. This however begs a question of our inflation measure which accentuates the use of rents by assuming and fantasising that owner-occupiers pay them. This is around 17% of that index. But contrary to the fact that rents are more expensive they seem to have got there without there being much inflation! As the fantasies are recent we sadly do not have a full data set but the response to a freedom of information enquiry tells us that the index has risen from 89.3 at the beginning of 2005 to 103.8 in early 2017. However they have apparently revised all this in the year or so since and now we are at 103.3 but 2005 is at 77.1. So measuring rents can go firmly in our “You don’t know what you’re doing” category and should be nowhere near any official inflation measure. What could go wrong with fantasies based on something you are unable to measure with any accuracy?
Size issues
This caught my eye as it goes against an assumption we have looked at on here which is that properties have been getting smaller ( as we get larger).
In the last 10 years, when families have been increasingly likely to rent, owners have seen the average floor space of their homes increase by 7% compared with a 2% rise for tenants. That leaves owners with an average of 30 sq m extra floor space than tenants, which the charity suggests is the equivalent of a master bedroom and a kitchen.
I am not sure how they calculate this issue for renters as back in the day when I was saving up I rented in a shared house. This was pretty much the same house as all the others in what is called Little India in Battersea (because of the names of the streets).
It wasn’t me
This is the response of landlords who presumably need some fast PR. After all longer-term landlords have made extraordinary capital gains on their investments and now seem to have done pretty well out of the income via rent.
Landlords say they face costs, including their mortgages, insurance, maintenance and licensing, that need to be covered from rents.
“These costs are increasing as the government introduces new measures to discourage investment in property, such as the removal of mortgage interest relief and the changes to stamp duty,” said Chris Norris, director of policy at the National Landlords Association.
Comment
The underlying theme here is the march of the rentier society. This seems set to affect the younger generations disproportionately especially if the current trend and trajectory of real wages remains as it has been for the last/lost decade. This gives us a “back to the future” style theme as that was the life of my grandparents who owned little but rented a lot. My parents managed to escape that and started by buying a house in Dulwich in the 1970s for £9000 which seems hard to believe now. But were they and I a blip on the long-term chart? It is starting to feel like that and this line of thought is feed by this from the BBC.
The charity estimated that private tenants in England are spending £140 more in housing costs than people with a mortgage.
That has been driven by the extraordinary effort to reduce mortgage rates starting with the cutting of interest-rates to as low as 0.25%, £445 billion of QE and to top it off the credit easing via the Funding for Lending Scheme. No such help was given to renters who of course have not benefited from “Help To Buy” either. Thus renters have a genuine gripe with the Bank of England.
Let me finish on a more hopeful development which is the Amazon news.
1) This is a significant increase. Around 20% above the national living wage and 10% above the real living wage. It amounts to hundreds of £ per worker, and also raises the prospect of other warehouse operators following suit ( Benedict Dellot of the RSA )
Whilst their working conditions may still be a modern version of the dark satanic mills of William Blake at least the wages are a fair bit better.