The Latest UK Economic Outlook report from PwC has revealed the major affordability challenges facing tenants, with those working in certain key public sector professions being priced out of London.
The report highlights the need and opportunity for a constructive plan to prevent a shortage of key employees in London, such as NHS workers, teachers and police officers.
Using the conventional benchmark that renting must cost less than 30% of gross annual income for it to be considered affordable, the report finds that an employee would need an annual salary of £23,800 to afford the median private rent in the UK. This is a rise of £400 from 2017/18.
In London, capital median private rents are well above 30% of income, making it extremely difficult for key professions to live in the capital.
Prison officers had the worst rental affordability ratios in London in 2017/2018 at 45%, with primary and nursery school teachers and nurses at around 40%.
For the latter, median wages would need to increase by around £10,000 a year for current rents to be considered affordable.
Those aged 22-29 are also badly affected, on average spending over half (53%) of their income on private rent, compared to those in Yorkshire who on average spend just 22%.
A lack of affordable housing has contributed to a sharp rise in shared living in London.This may hold down rents per person, suggesting that standard affordability measures may understate the scale of the capital’s problem.
Rents are also unaffordable for many professions in the rest of the South East, ruling out commuting to the capital from further afield.
If these current trends continue, it is projected that the average affordability ratio in London could reach 47% by 2022/2023, from 42% in 2017/2018. For young people, who already face median rents that are more than half of median incomes, the additional squeeze on disposable income could be even greater.
Robert Walker, partner and UK Housing Leader at PwC, commented: “Looking ahead, reducing the cost of housing – both renting and purchasing a house – should be a priority and government and business should work together to improve affordability by increasing the supply of properties to put downward pressure on property price inflation.
“One lever the government could pull would involve working with housebuilders to ensure that the target for 300,000 new homes a year in England is met.
“In addition, the taxation of residential property is now very complex, which our analysis shows isimpacting the housing market and people’s ability to acquire, to upsize or to downsize.
“We need a coherent programme of property tax simplification and reform in order to help solve the housing crisis in the UK and provide an additional boost to the economy.”