Is the cost of London housing dragging down the whole economy?

High rents and house prices in London are costing the UK around £1 billion a year according to analysts. The Centre for Economics and Business Research has released a study that shows how much of Londoner’s earnings (shown by job type) needs to be spent on rent.  The findings are staggering:

Profession                   % of pre-tax salary spent on rent

  • Care Workers                          99%
  • Teachers                                  58%
  • Creative Sector                       57%
  • Science Sector                        48%
  • Lawyers                                   40%
  • Accountants                            40%
  • Food and Drink sector          112%

As you can see, those working in the food and drink industries would need to spend more than they earn if they wanted to rent a property on their own, so many are forced to either live with their families or share properties with other renters to make ends meet.

As a general rule of thumb, mortgage or rental payments should be no more than a third of a person’s income so it just shows how London is completely out of kilter with other parts of the UK.

Around £1 billion lost to the national economy

Figures like the above demonstrate why staff retention is such a huge problem in London. Employees simply get fed up of having no disposable income after rental payments so they eventually leave the capital and seek pastures new.

When the figures are completely extrapolated they show that if London house prices had stayed in line with inflation over the last 10 years, then an extra £2.7 billion of consumer spending could have been pumped into the economy, equating to around 11,000 jobs and boosting the national economy by at least £1 billion.

The best investment opportunities are outside of the capital

In light of this, cities such as Birmingham and Manchester are creating a great deal of traction as people and investors move out of the capital looking for somewhere more affordable.

The job opportunities, quality of life and more affordable housing in these cities is proving to be an irresistible force for attracting new residents and new investments. You only need to look at the amount of regeneration that Birmingham has enjoyed over the last few years and the amount of money being pumped into ‘Northern Powerhouse’ cities to see that some of the most attractive investment opportunities are taking place outside of the capital.

At Barrows and Forrester Investments we have prime residential and student property investment opportunities across cities such as Birmingham, Manchester, Liverpool, Leeds and Bradford so contact us now to find out more.

6 October 2015
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