Clive Docwra explains why many Londoners still choose to rent despite falling property prices.
Are we finally seeing some light at the end of the tunnel for those Londoners trying to get a foot on the housing ladder?
New figures published this week by the Land Registry suggest that, on the face of it, we might be. The average price of a flat in the capital – the traditional first-time buyer’s choice – fell by 2.5% over the last year. Research based on these figures shows the average cost of a flat totalling around £230,000 in the cheapest London boroughs of Havering, Barking & Dagenham and Bexley. And, with Brexit looming ever closer, many experts are predicting further falls.
Indeed, the fall in demand from investors – as many adopt a ‘wait and see’ stance on Brexit – has certainly affected investment in new developments, and this trend may well continue. A sluggish market in London and the South East has also meant lower demand for flats as there’s already a heavy supply of these in the capital. It means prices have fallen more over the last year than for some time.
Despite this good news, however, the average cost of a flat in London is still almost £410,000 (albeit down from more that £420,000 twelve months ago). According to figures from Hometrack, the research company, London remains too expensive for many young first-time buyers, with £84,250 the average income required to buy an average property.
Plus the reality is that no-one knows what will happen to prices after – or if – Brexit happens. Buyers may be waiting in the hope that prices will continue to fall. But it’s not only demand that’s dropping – supply could dry up too, with many people battening down the hatches until they have a clearer picture of what’s going to happen.
That means, despite the price fall, London is more likely to remain the capital of Generation Rent rather than ownership. According to a report by the Resolution Foundation, the think tank, fewer than one in five young families in London, Manchester, Liverpool, Brighton and Birmingham own their homes. On a national basis, the report found that in the late 1980s just 9% of young families lived in the private rented sector, but now it totals one in three families.
In fact, in the next twenty years, we could see renters outnumbering homeowners for the first time. A new report published this week from VeriSmart, the lettings firm, shows that based on current rates, tenants privately renting are expected to make up 50.7% of the housing market by 2039.
Currently, the UK has the fifth highest number of tenant occupiers out of all 28 EU nations – and the trend is that renting is becoming more popular.
Some of this is obviously down to the cost of buying and the fact that renting is cheaper. Earlier this year, the Deposit Protection Service, a government-approved body that is one of the few official sources of data on rents, said that rents had fallen to their lowest level in three years, with the biggest drop in south-east England, where the average rent has fallen from £879 to £854 over the past year.
But choosing to rent is not always due to being priced out of the market.
Build-to-rent properties are especially appealing for Generation Rent because of the amenities they can offer like pools, gyms, communal areas, and services. These types of new builds are ideal for those who prioritise a higher standard of accommodation over stepping onto the property ladder as it allows most renters to have access to facilities they wouldn’t normally have in a traditional home. Benefits also include flexible tenancies – attractive to London’s increasingly mobile working population – and no letting fees or unpredictable rent increases.
Home ownership may be in the Conservative’s DNA – Jeremy Hunt, for example, this week put it as a centrepiece of his bid for the leadership – but the new PM, whoever that may be, should also prioritise a policy that enables more Londoners to rent should they wish.