What Happened to the Housing Market? A Look at London and Beyond.
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What Happened to the Housing Market? A Look at London and Beyond.
The name on everybody’s lips is Cozzie Livs. Affectionately-christened but an unwelcome guest, she’s the lovechild of rising mortgage interest rates, inflation and various national and international disasters including but not limited to a string of incompetent Prime Ministers, a Russian war and the pandemic. I, for one, am finding it increasingly difficult to see through the eye of the perfect storm we’re in. Networked thinking and teasing apart economic shifts is difficult when governmental actors offer little more than platitudes in the public discourse
whilst choosing to ignore the real problem (such as the negative effect of 2-3% GDP of Brexit on the UK economy.).My own situation is a relatively mild - if frustrating - result of this heady cocktail of economic blows. Like me, 51% of 20- to 24-year-olds are currently living with their parents. In London - which remains the least affordable city in the UK for buying a home (the cost now being an average 1250% of a potential buyer’s annual income) - the proportion of adults living with their parents has increased more sharply than anywhere else in the UK since 2011. Unfortunately, I am not surprised. Most of the kids who grew up in my street are now part of the 51% of adult children living at home and at least two of them have MAs from some of the best universities in the world.
I’m deeply grateful for my parents’ help. Without their support, I could scrap the idea of living in London altogether. What’s bothering me is that this strange state of extended adolescence seems to have only one alternative: spending an average of 39.8% of your total income on rent alone, solely for the privilege of living in a city that is increasingly hostile to the average working person. For lots of my friends, moving to London was the only thinkable option after university. It feels like the magnetic core of professional, social and cultural life in the UK, whilst other options don’t seem like options at all. I, too, have little interest in moving to Birmingham or Cardiff. Although I’m sure they’ve got a lot to offer, they just don’t have that glistening, promising sheen of opportunity that the Big Smoke still relies on to draw newcomers in.
Boyfriend and I recently viewed a damp, ground-floor flat in Hackney situated romantically between two dual carriageways, with blocked-out, North-facing windows and no dishwasher. It was advertised for the humble sum of £1750 per month, sans bills. I will not - and cannot - spend my hard-earned cash on digs like that. But how did we get here? Is there respite on the horizon? Let’s embark on a journey through the wasteland of London’s property market, the stage of the rising cost of living for our capital’s residents.
How we got here
Whether your landlord is benevolent, unbothered or of a more sinister persuasion, their relationship to the market and the wider trends in home ownership they exemplify are key to understanding why you’re paying close to a grand for a room in a shared flat in the sticks. Yes, your landlord may be the owner of a property obtained outright through the fruits of a profitable career (like the 60-something Miami apartment block owner I met on a yoga retreat in Ibiza who spends his tenant-financed bachelor days on European holidays). But they could also be yoked to financial institutions and lenders through mortgages, subletting a room for extra cash
, or financing a cheaper lifestyle elsewhere through the fruits of a well-timed investment. Your monthly expenditure is just the tip of the iceberg.Before I get into it, I’d like to note that renting used to be the standard, not just a stepping stone to home ownership. In the 1920s, almost 80% of people in the UK rented their homes, an overwhelming majority of which were owned by private landlords. Pre- and post-war building booms and three housing bubbles saw the proportion of privately rented properties drop to 10% of total households in 2000, with 70.6% of households owner-occupied that year. Things seemed to be looking up - the elusive and mythical nirvana that is home ownership was a not-so-distant dream for many.
All things must pass, however. The 2007 economic crisis, caused by predatory mortgages offered to low-income buyers resulting in the bursting of the US housing bubble, was reflected in a similar practice in the UK. Here, the utopian objective of transforming the country into a ‘property-owning democracy’ had been a consistent part of public policy since the 1980s. Of course, when people buy their homes with borrowed money (as is standard practice), a global financial crisis is fatal. When large numbers of people are unable to make their mortgage repayments, banks stop making money. Despite the fact that most of us rely on them to realize the dream of home ownership, banks are not primarily concerned with public welfare. The 2007-8 crisis went down as a cautionary tale in the banking sphere, resulting in highly cautious lending and rising interest rates on mortgages. This is because their financial engine runs on interest on loans - loans to buy homes. When banks smell danger, they chase after the money by raising interest rates (as is happening right now). Meaning: it has become much, much harder to get a mortgage.
This means that even if you have an annual income above the national average £33,000, the likelihood that a bank will offer you a mortgage for a property in London is very slim - unless you’re interested in buying this unused stairwell in Twickenham for just £20,000. A total bargain.
Higher interest rates also mean falling housing prices, because if no one is buying, the value goes down. Supply! Demand! If you are unable to buy without a mortgage, falling housing prices don’t benefit you. If you’re wealthy enough to buy in cash, however, then it’s a good time to buy. And that’s just what the people who can afford it do. Although average UK house prices have dropped by 3.5% in the last year, London’s have only fallen by 1%. This doesn’t mean we’re doing better than the rest of the country - quite the opposite, in fact. Londoners’ inflation-adjusted incomes were 8% lower than during the 2007/8 crisis and inflation rates have been outpacing wage increases. The comparatively weaker drop in housing prices just means enough wealthy people are able to buy in cash and are doing so. 70% of central London properties bought this year were purchased outright. In statistical terms, this evens out the decreasing numbers of other groups able to buy, creating a false sense of security on the surface when looking at the numbers. Translation? The wealth gap in London continues to grow
.In classic fashion, the central bank base interest rate for mortgages was raised by over 4% since December 2021, standing at 5.25% at time of writing, in order to counteract inflation. So: if your landlord has a mortgage to pay off, your rent has probably increased by a decent amount compared to what the last tenant was paying. If they own their house outright and have a good dose of capitalistic business acumen, they’ll raise the rent anyway to keep up with the market. All you can hope for is a landlord who doesn’t need the money.
What to do?
In their article Real Estate, Schifferes and Shafique make the point that the pressing housing issue we face today is not concerning how best to increase home ownership - it is how to ensure that everybody has access to safe and affordable housing at the basic level. This includes but is not limited to those without a home, those struggling to make rent, and those relying on housing benefits. The authors note that in addition to these cases, mortgage-holders approaching retirement age and retiring renters whose pension may not keep up with rising costs of living will be a growing demographic in need of assistance in the coming years. I need not remind you of the 13,400 excess deaths in the winter of 2021/2022, bearing in mind that the majority of such deaths occur in those aged 75 and above. In a country whose capital is home to the highest number of billionaires of any European city, this is beyond shameful.
Although housing benefits are a lifeline, many recipients are still forced into the private rental sector due to a sharp decrease in available social housing in the UK in recent years. Social housing, or council housing, is the only form of rental option which is consistently proportionate to local income. This means residents live in council-owned properties and are able to pay lower rents than the market standard if this standard is unaffordable on their income. According to Shelter, there has been a loss of an average of 24,000 social homes each year since 1991, leading to a consistently increasing deficit. The result? An increase in households relying on temporary accommodation and homeless shelters. This is symptomatic of the UK government’s neoliberal approach, shifting responsibility away from the state and towards private developers. Theoretically, but only theoretically, this could work - if private developers could be relied upon to include affordable housing in their planning. Of course, with no incentive to do so and a juicy enough market of cash buyers (particularly in London), why should they? This is the first, most obvious and yet often happily overlooked tautology in the neoliberal approach to social policy: people whose job is to turn a profit will focus on turning a profit.
The first solution is to stop demolishing existing social housing. Another is to increase the current 10% quota of affordable housing included in every major property development to match demand, as well as redefining what ‘affordable’ means in local terms. Remember: ‘affordable’ is often just slightly less expensive, still out of reach for most. Taking local income into account when defining affordability is essential, especially in a city like London where the super-rich and those living below the poverty line often live only streets away from each other. Such chasms often hide in calculations of averages and this must be taken into account. Part and parcel of increasing the supply of affordable (and ideally social) housing is ensuring that the homes which are built are constructed in an adequate location which does not involve residents being relocated to far-flung outskirts, away from their jobs. Energy efficiency and quality are just as essential, as this can considerably reduce the financial pressure of associated costs of living.
Beyond concrete solutions, what is really needed is an attitude shift. Adequate housing is an absolute basic, and the excuse that there isn’t enough money to go around is simply not good enough. If the Chancellor of the Exchequer can legally direct £75 billion away from pension funds and towards ‘high-growth’ private sector start-ups, then reshuffling some finances towards measures that might actually help the UK’s 14.4 million people living in poverty should be possible too.
“Things are tough right now” - Rishi Sunak, August 2023
This isn’t technically a landlord, but a relatively common way of squeezing out a little extra capital and so worth a mention.
If you’re interested in the gritty details, I highly recommend Caroline Knowle’s Serious Money: Walking Plutocratic London. She clarifies the London property market and its key players with impressive agility and a necessary dose of humour.