Young professionals are moving outwards and creating demand for cheap homes
The wages of London’s young professionals are failing to keep up with skyrocketing rental rates. They have no chance.
Rental costs have shot up eight times faster than wages over the past year, to an average of £1,106 per month.
No wonder over half of 20-45-year-old Londoners think renting will become the norm in their generation, according to Halifax’s Generation Rent report. It’s an inevitable consequence, when 50% of Londoners aged between 20 and 40 are now renting, well above the 30% norm for the UK at large.
You can even rent a Grade II county manor in Northumberland for £2,225 per month, a rate that could alternatively get you a studio flat in central London. The manor has five bedrooms, while the London flat has just the one, for the same price.
It’s looking like young Londoners will remain trapped, forced to scrabble up the rental ladder.
How are they choosing to cope with soaring central London rates? By upping sticks to Zone 3.
Communications professional Anton Perreau works in Oxford Circus and decided to move out from the Zone 1 climes of Old Street all the way to Zone 3’s Crouch End. The commute was still 40 minutes but he pays £100 per month less and he could not be happier.
“My quality of life is far better, I have more space, a much nicer house and I find it’s cheaper to do things out here,” he says.
The only downside is that if he goes on central London nights out, he has to “take a 50 minute bus journey at 5am just to get home”. Not that he’s too downhearted. “It’s making me grow up faster, that’s for sure.”
26-year-old Charlotte Ward, who works just off Tottenham Court, is thinking of moving to Zone 3 as well. In this case, she and her partner are eying up Wembley.
“We are thinking of moving further out of London – towards Ruislip – so that my partner can begin saving more money. The problem is that by moving further out, I have to spend more on transport. It’s fine because I can afford it, but it means that the amount I personally save will be even less.”
Meanwhile, 24-year-old Hannah, a nurse, feels it’s impossible to live in central London given the prices, explaining her decision to move outwards: “Why work here, you can’t live!”
And outer London has never been more in fashion for young Londoners, with the attraction of cheaper properties drawing them in.
Eastern outside areas like The Isle of Dogs, Limehouse and Wapping have been an increase in demand of 42% since the last quarter of 2012 and the first of 2013, according to analysis from Cluttons property consultants.
This can only have been helped by the prices, with the average rent in the Isle of Dogs staying at £331 per week, more than five times less than average Mayfair rents (£1,744 per week).
Meanwhile, to the south-west, Clapham, Battersea and Wandsworth have enjoyed a 53% quarterly surge in tenant registrations for the first quarter of 2013.
But even Zone 3 doesn’t guarantee affordability. Elma, who’s 40 years old, works as a writer. She explains: “I’m currently looking for a house share in Crystal Palace [Zone 3] and I’ve seen en-suite double-rooms in shared accommodation for around £800 per month, which is utterly ludicrous.
“My budget doesn’t stretch that far.”
It’s no wonder, then, that opportunistic property investors and developers are looking for opportunities that capitalise on the prices ticking up in Zone 3 – and beyond – to cater for those newly arrived professionals in need of cheap homes.
The outward drift has been picked up on by property experts, like Sohail Rashid, CEO of Property Network.
“”Rental prices in Central London continue to rise relentlessly, and so naturally this is forcing the less affluent out of Zone 1. The London rental market grew by 75% in the ten years leading up to 2011, and with no rental caps coupled with short term tenancy contracts, rental prices were bound to explode,” he says.
Zone 3: Investment opportunity?
Harry Downes is director of Fizzy Living, an initiative providing affordable accommodation in outer London. He says: “There are thousands and thousands of well-educated 25-35-year-olds with perfectly good jobs, and they have nowhere to live!”
Fizzy, funded with support from the Thames Valley Housing Association, has hundreds of units in Epsom (Zone 6) and Canning Town (Zone 3) and is planning to build 1,000 more around London in the next few years.
Downes’ says that living outside of Zone 1 “is not so bad”. “We’re targeting places that are a bit cheaper, good places to live, and get you into town quickly and safely.”
Indeed, the allure of providing cheap accommodation in outer London has drawn big business. Just as Londoners find themselves moving out of Zone 1, business is responding to the drift by providing further property opportunities.
Harry Downes speaks of a “huge movement” towards the private-rental sector driven by Londoners’ desire for “somewhere to rent and they’re fed up with the quality available”.
And with the housing crunch biting harder on young Londoners, it seems there will be little let-up in rental costs. Lizzie Clifford, London lead manager at the National Housing Federation, warns: “Rents will continue to rise in London until we start building enough affordable homes.”
But will enough affordable homes for the rented sector ever arrive? There is certainly public pressure for them. Caroline Kenny, executive at the UK Association of letting agents, says: “London Assembly figures show that the private-rented sector grew by 83 per cent between 2000 and 2010 and now accounts for over 850,000 households in London.
“This means that one in four London households is currently renting privately and demand for rental accommodation is only going to grow in the years to come. However, with the number of new homes being built in London still falling far below what is needed, national and local government, in partnership with local councils and Londoners, need to come together to kick start a new house building renaissance in the Capital.”
Hopes for decreasing rental costs seem to lie with the developers. Cripps planning partner Jason Towell observes: “The government is seeking to encourage an alliance of developers, and the large financial institutions, to provide a material increase in the number of homes for rent whilst also increasing the quality of homes on the rental market.
“If homes for rent can become established as an investment vehicle, not reliant on schemes such as the Build to Rent Fund to work financially, then we could see a material increase in rental homes, lowering rents.”
The opportunity for investment in these areas is palpable.
Lured by the range of Londoners needing cheap homes, outer London will almost inevitably be deluged with bulldozers for the coming years.
hether the long-term buy-to-let investment prospects will be buoyed or damaged by the new flux of home-building remains to be seen – but at least any young Londoners heading out to Zone 3 will be in good company.
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