Monday 12 October 2015

This is what you want, this is what you get.

City AM has long been a cheerleader for the One Per Cent, the landlords, land speculators and bankers etc, but it appears that london's businesses have finally woken up and smelled the coffee:

Housing costs are becoming a problem for employers as much as for workers. The scarcity of talent, inflating wage costs, and the drag on the whole London economy are beginning to bite hard. Our aim is to put the housing crisis at the very top of the new mayor’s priority list, whoever wins.

Exclusive research for the campaign by economists at the Centre for Economics and Business Research has examined what percentage of salary those working in different sectors would have to spend to afford an average home rental in the capital. The results are startling.

In food and drink, which includes the people who sell you your morning coffee, the cost is 112 per cent of salary. Then there’s the care workers at 99 per cent. Those in education, giving the city’s workers the vital skills needed for the future: 58 per cent. Creative industries, 57 per cent, and science, 48 per cent – both key growth sectors for London. Even lawyers and accountants are at 40 per cent. For many people, renting a home with a single income is impossible – unthinkable just a few decades ago.

It’s generally accepted that, in a functioning housing market, the cost of renting or servicing a mortgage ought to be no more than a third of a person’s income. Well, that construct has been well and truly broken in London. The capital is already one of the most expensive cities in the world to live – with rents three times as expensive as in Berlin and close to double those in Dubai. House prices have doubled in the past decade – and the typical cost of a home is now an eye-watering £525,000.

This is all causing a staff retention problem for companies based in the capital, because we’re seeing employees just get fed up of the costs, and the lack of pounds in their pockets, and move out of town.


'Nuff said.

13 comments:

mombers said...

Note that the exodus isn't from London jobs, just people living in London. What a tragic waste, all the time and money spent on commuting. No wonder productivity has struggled.
My favourite soundbite at the moment is 'worst value housing in the world'

DBC Reed said...

The CBI made headlines this time last year with "UK housing shortage costing consumers £4bn" complaining that expensive housing was/is reducing demand. But appealing to the 'business community'appears completely useless as too many of them are part of the Homeownerist scam.

Mark Wadsworth said...

M, yes, there is that as well.

DBC, i remember that, but that was special pleading for more planning permission, not that the corporatists in the CBI have any intention of using it. Their £4 billion is a made up number - the land monopoly black hole (™ BenJamin) swallows more like £100 - £200 billion a year.

James Higham said...

Housing costs are becoming a problem for employers as much as for workers. The scarcity of talent, inflating wage costs, and the drag on the whole London economy are beginning to bite hard.

Some are moving onto the water.

Lola said...

For me offices in london would be £80 to £100 / ft. Here in Ipswich £7 to £10 / ft. And that differential works all the way through the land food chain. To rent a 3 bed mid terrace with garden in Ipswich is about £500 t0 £600 p.c.m.

Yet I can be in London into the City from my offices in Ipswich in about 90 minutes tops.

This reflects all through my costs, and I know I pay my staff relatively well. They have much higher after rent incomes than their London equivalents.

I can offer London quality services at provincial prices.

So AFAIAC carry on London. Keep pricing yourself out of the market.

Bayard said...

Businesses may have woken up and smelled the coffee, but City AM hasn't abandoned its One Per Center friends just yet:

"Quite simply, we need to double housebuilding in the capital, up to 50,000 homes a year."

Thus putting lots more money in landowners' pockets and doing bugger all for house prices. 50,000 homes is approximately 1% of the capital's housing stock. Even if high prices were caused by a lack of supply, a 1% increase is hardly going to make much of a difference. In any case, where are they going to put 50,000 houses a year in, not outside, London? It's just the old "please let us make billions by building on the green belt" cry again.

benj said...

Baroness Jo Valentine, chief executive of London First, writes

"It’s generally accepted that, in a functioning housing market, the cost of renting or servicing a mortgage ought to be no more than a third of a person’s income."

Only generally accepted because people don't understand the Law of Rent.

That being discretionary incomes are set by those at the margin of production ie zero land values.

It's due to agglomeration effects(AE) on average wages, that in Hull(smaller AE) housing costs might be a quarter average income, or in London one half average income.

Result, flat average discretionary incomes across the UK, as per Ricardo.

The trick is to increase discretionary incomes without deadweight losses.

IMO, LVT would level the playing field between the regions, increasing wages outside the SE, and shifting demand for housing there.

Of course, wages will always be much higher in London, but the differential will be less. Result: higher average discretionary incomes across the board=more affordable housing.





Lola said...

BJ Precisely.

From memory didn't the gummint offer 'london weighted' wages to teachers and the like? In truth these are 'rent weighted wages'.

Bayard said...

Lola, back in the day, when I was a civil servant working in London, we had our salaries topped up by "London weighting".

Tim Almond said...

Lola,

"I can offer London quality services at provincial prices."

When I first started freelancing, someone set me up with an accountant. After a couple of years I got fed up with them and only at that point did I see the London effect - I got a local guy in Swindon who was better and charged me £35/month less.

One of my bugbears is how people go and eat out in London because of celebrity chefs (and TV companies never go out of London to find restaurants). Anywhere anyone lives, there's a fancy Michelin place nearby and in almost every case, you'll get the same standard of cookery for less money than London, because of the rents. Plus, you don't have to go into London.

We're getting more and more software work in the Swindon area because companies got over the fear of staff not being nearby, and some software/infrastructure things got built that helped with communications. But they still like British staff that aren't too far away.

I get why certain specialised stuff might be in London, but I got a call about some work from a company the other day that could have been based anywhere (it's based around phone, email or web), but are in Hampstead. Yet they're quibbling over my advice to pay £500 to the supplier of their website for the IP. Oh, and are using cheap hosting (about £10/month) instead of good hosting (about £30/month).

Budvar said...

The long term mean average for house prices has been 2 to 3.5 times earnings, and that's over about 200 years. Mean average of interest rates over the same period has been about 8 to 10%.

Once interest rates get back to the mean, house prices will follow.

Mark Wadsworth said...

B, 50,000 is 2% but I take your point.

BJ, yes, exactly.

TS, probably true but London is addictive.

Bud, nope, if you exclude the 1970s and 1980s, average interest rates in the UK was about five per cent.

The 70s and 80s were a blip, they will not happen again. It's the same as the 60s and 70s crime wave. Probably had something to do with lead in petrol addling people's brains.

Lola said...

MW. London certainly is addictive. I was born there and I get a buzz every time I go back.