Data from the Office for National Statistics (ONS) for the year leading up to March 2022 paints a concerning picture: London dwellers have been doling out an eye-watering 35% of their incomes to cover rental costs, averaging £1,450 per month. This figure isn’t just a record for the city; it’s the highest across the UK, and alarmingly, it’s the sole region where the rent-to-income ratio exceeds 30%.
Why does crossing the 30% threshold matter? The ONS considers any percentage below this a marker of affordable private rent. This standard paints a bleak picture for London, especially for its less affluent residents, where the ratio skyrockets to 46%.
Looking beyond London, private tenants in England are faring slightly better, spending an average of 26% of their income on rent. In contrast, those in Wales and Northern Ireland are allocating 23% and 25%, respectively. However, these figures only account for the situation until March 2022. Subsequent months have seen rents surge nationwide at an unprecedented pace, further compounding the financial pressures on households.
Record-Breaking Rent Rises Add Fuel to the Fire
Recent trends indicate a worrisome trajectory. Separate ONS data reveals that UK rents have swelled on average by 5.7% annually. The situation in London is even more pronounced, with an increase of 6.2% — a record since the capital’s data collection commenced in January 2006. This relentless climb has broad ramifications, contributing to what Victoria Scholar, from Interactive Investor, describes as an “accommodation affordability crisis.”
The growing gap between income and housing costs isn’t just a statistic; it’s a reality for nearly half the population. A regular ONS survey highlighted that 43% of participants struggle with rent or mortgage payments, a steep climb from 30% just six months prior.
Wages Can’t Keep Up, Especially for the Young
While there’s been nominal wage growth, it hasn’t been universal or substantial enough to offset the rent hikes. Martin Beck of the EY Item Club points out that younger demographics, often earning less and more likely to rent, are disproportionately impacted by diminishing affordability.
Understanding Why Rents Are Soaring
Several factors are contributing to these soaring rents. A notable one is the spike in property demand, driven by skyrocketing mortgage costs that push homeownership out of reach for many, especially first-time buyers. This increased demand allows landlords, who are also facing higher borrowing costs, to hike rents.
Supply constraints are also inflating rental costs. Andrew Wishart of Capital Economics notes that some “highly leveraged landlords” are compelled to offload properties upon refinancing due to poor returns, reducing rental availability.
Moreover, Tom Bill from Knight Frank attributes part of the relentless rent rise to the government’s past decisions to burden landlords with additional regulations and taxes — measures often adopted for their political favorability.
Unfortunately, Bill foresees the supply-demand disparity persisting, ensuring rents remain on an upward trajectory for the foreseeable future.