Sky high rents in the capital could be costing the economy over £1 billion per year according to data published today by business group London First and consultancy firm CEBR.
The cost of living in London soared since the financial crisis and shows no sign of slowing, making most of the capital unaffordable for workers.
The capital’s housing market made a quick recovery after the financial downturn in 2008-2009 but house prices are now ‘46% above their pre-crisis peak’ and rent prices have risen by a third over the last decade, according to the Office for National Statistics.
The study shows the knock-on effects of high rents and mortgages on consumer spending, with the majority of workers in the capital spending their salaries on renting properties.
The report highlights the effect of the housing crisis on businesses in the capital as employers are having to increase wages to attract new staff and help them to meet the cost of living. Employers across the majority of sectors are also facing harsher competition and staff retention problems.
In order to compensate for employees housing costs, businesses ‘are faced with a £5.4 billion wage premium this year’ equating to £1,720 per person and it’s set to grow to £6.1 billion by 2020, according to the report.
Approximately £2.7 billion has been redirected from consumer spending in the capital this year. The report states that if the cost of housing had risen in line with inflation, an additional 11,000 jobs would have been created in 2015 amounting to an economic boost of £1 billion.
Using average salary data, the report states that ‘the housing crisis is making it difficult to attract and retain staff in retail, care and sales occupations’.
‘Even if they spend a limited amount on other goods and services, they are effectively priced out of living independently in the capital. They need to co-habit with partners, friends or family, or be eligible for social housing in the capital.’
Employees such as restaurant workers and sales assistants are having to spend their whole pre-tax wage to rent a home in London.
Scott Corfe, associate director at CEBR believes that the housing crisis ‘risks undermining the capital’s position of a global centre of enterprise, talent and success’ and Chief executive of London First, Baroness Jo Valentine, furthers this:
‘If we carry on as things stand, in 10 years’ time London will be a no-go zone for employees across all sectors and at almost all levels’.
Discussing the issue in City AM in relation to SME’s, she says that ‘…we cannot duck the issue any longer. Otherwise, we’ll squeeze out the entrepreneurial activity that a vibrant city relies upon, effectively booting out tech start-ups – one of our city’s great success stories in recent years – and swathes of our creative industries.’
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