London’s property prices have long been regarded as endemically high, preventing many first-time buyers from purchasing their first home and boosting demand for privately rented properties.
The result has been the emergence of Generation Rent: the demographic prepared to live like students in shared accommodation so that they can afford to be close to all the action of central London. However, the fortunes of the average renter are now starting to look healthier. New data from Zoopla indicates that the affordability of renting in London is improving.
Take the instance of an average single person occupying a one-bed rental home in London. Over the past five years, almost half (49 per cent) of their earnings were spent on rent.
However, this year average earnings have increased at double the rate of average rents – and rents also fell between 2017 and 2018. The effect of this has been that in the past year, the proportion of a single person’s earnings absorbed by rents in London has dropped three percentage points, to 46 per cent.
Rent spending falling in line with UK average
It’s not a dramatic decrease, but when you consider that most of London’s renters share a property, the affordability ratios improve further. Two earners renting a two-bed property in London will each spend an average of 24 per cent of their earnings each month on rent, which increases only marginally to 28 per cent for two people renting a three-bedroom home. This is more in line with UK average rents, which absorb 33.2 per cent of earnings for a solo renter.
While affordability is improving at a London-wide level, it is important to recognise that there is no single rental market in the capital, and the demand for rented homes is diverse, with a high proportion of renters on lower incomes. Rents vary widely across London based on available supply and renter demand – which in turn is led by access to transport and services.
The most attractive levels of rental affordability are found outside of zones one to three; in Bexley, Bromley and Sutton, two renters in a two-bed property can expect to spend 19.1 per cent, 19.7 per cent and 20.4 per cent of their average annual earnings on rent respectively.
How to maximise your rent savings
Renters in London also have growing choice, with up to 30 per cent of homes in new-build developments now bought by corporate landlords. This is additional to so-called build-to-rent developments, where new homes are offered with all-inclusive rents and longer-term tenancies.
Rising supply should keep rental growth in check, but there are also things renters can do to maximise their financial advantage. This can include signing up to a longer-term tenancy on the agreement that rents rise below inflation levels each year; sacrificing a spare bedroom and taking on an additional housemate; moving further out to secure better value without compromising on quality; or assessing the cost of council tax across London’s boroughs and offsetting it against rent.
Ultimately, London’s rental market is large and dynamic. It’s a landscape of improving opportunity and flexibility, and this offers a genuine range of choices for renters.
Richard Donnell is research and insight director at Zoopla