London rents might be ‘falling’ for some, but a minimum decent standard of living still costs substantially more in the capital

Over the past few years, good news about housing, particularly the cost of renting in the private sector, has been in short supply.

So it is little surprise that recent figures compiled by Countrywide, suggesting a fall in private rents across the UK, with a significant fall in the capital, were seized upon as representing a turning tide, as providing welcome relief for those in the private rental sector who have experienced year after year of rising rents.

However, taking a closer look at these figures, it becomes clear that the good news on rents is more for the few, than the many. According to Countrywide, rents for new private lets in London fell by around 5% between February 2016 and 2017. This is a bigger fall than the 0.5% decrease reported in August last year. Great news for ‘the few’ new tenants who are saving a colossal £63 a month – £14.50 a week – on average rents in the capital.

But for ‘the many’ things are very different. The same data show that average rents for tenants renewing existing contracts have actually increased by 3% over the same period, £36 a month, or £8.30 a week. Analysis from the National Housing Federation provides yet more evidence of a mounting ‘affordability’ problem faced by many renters, particularly as rents continue to increase at a more rapid pace than earnings. And this affordability problem is only likely to get worse as the freeze in the Local Housing Allowance starts to bite.

Our recent research on the costs of a minimum decent standard of living in the capital – funded by Trust for London – draws attention to some of the potential consequences of high and increasing rents. The research, based on detailed discussions with groups of members of the public, explores the goods and services families in Inner and Outer London need for a minimum acceptable standard of living, covering both essentials and enabling people to participate in society. Updating research from two years ago, the study addresses a key question: how does the cost of this minimum differ in London compared to the rest of the UK? Actually, for most goods and services, the costs of a minimum in London are broadly similar to those in other urban areas of the UK: food shopping at large national supermarkets does not cost any more in London than in, say Bolton;  access to the internet does not have a London premium attached to it.

However, three key areas of difference emerge: childcare, transport and housing. There have been increases in all three over the past few years, but the most significant of these has been in rents in the private sector. Contrary to the recent headlines, private rents at the cheaper end of the market have grown much faster in London than in other parts of the country. Urban areas outside London have seen increases of around 4% in rents at this end of the market in the last couple of years; in London, rents have increased by around 15%.

This means that a single working-age adult living in Inner London needs more than 1.5 times as much as they would if they were living in an urban UK area outside of London in order to have what the public agree is a decent standard of living. It means that should a working-age single be out-of-work – in Inner or Outer London – safety-net benefits would cover only a quarter of what they need as a minimum, a significant deterioration in the adequacy of state support since 2014. It means that even working full time on the new higher National Living Wage (NLW), a single person in Inner London would be further from reaching this decent standard of living than in 2014 – the increase of £23 in weekly full-time pay (after tax and NI) resulting from the NLW has been wiped out by the £34 a week increase in lower quartile rents over the same period. Increases in the minimum wage are to be welcomed, but as state support for rents is restricted – through a freeze on Local Housing Allowance – increases in rents are likely to borne entirely by individuals and will have to be met by cutting back in other areas. In other words, it is likely that increased earnings from the NLW will be covering rent hikes rather than improving living standards as intended.

The impact of higher rents is not limited to singles. As the social housing stock shrinks and as it becomes harder for families with children to access this, growing numbers find themselves with little choice but to rent privately – 1 in 3 private renting households in London now include children. For a couple with two children living in Inner London, renting privately at the lower end of the market means that they would need more than 1.5 times what they would need living outside of London; in Outer London, they would need nearly 1.4 times as much. This means each parent needs to earn around £35k in Inner and £33 in Outer London in order to have what the public agree is a decent minimum standard of living.

So what does this all mean for living standards in the capital? One way of answering this question is to look at the number of people living in London who don’t have the income they need for this minimum decent standard of living after paying for housing and childcare. The answers this analysis provides are alarming: 4 in 10 Londoners have an income below what they need for this minimum standard of living; 6 in 10 children are growing up in households with incomes below this level; and 8 in 10 children in lone parent households don’t have all that they need for what the public agree is a minimum. What is more, changes to state support, particularly for working families, such as the two-child limit, are likely to make this situation worse.

It is difficult to avoid sounding like a stuck record when looking to solutions. Clearly something needs to be done about housing, in particular ensuring that affordable means just that – establishing a link between wages and rents may help here. Rethinking reforms to welfare, such as the benefit cap and the freeze in Local Housing Allowances, could help ease an increasingly challenging situation for many households. And improving incomes through pay is also important – the National Living Wage is a good start, but encouraging employers to pay the London Living Wage could mean a boost in pay for low income workers.

In 1743, poet William Shenstone captured something immutable about London when he wrote that ‘nothing is certain in London but expense’. Writing more than 250 years later, fellow poet Kate Tempest captures what it can only be hoped is a more transient truth – that London is a city where ‘if you fall short, you fall’: