The housing crisis needs “creative thinking and innovative approaches”, with key workers being priced out of London and the South as rental affordability ratios deteriorate, a new report reveals.
Sector experts at PriceWaterhouseCoopers (PwC) have urged the government to work closely with builders toward the 300,000-new-homes-a-year target in England, while reforming property tax and encouraging initiatives such as crowdfunding to open up the property market.
The latest PwC UK Economic Outlook shows private rents in four regions – London, South East, South West, and the East – are now considered unaffordable for workers on median wages.
Many key workers, including primary school teachers and nurses, face unaffordable rent levels in London and the South East.
Tenants in London aged 22-29 are spending over half (53%) their income on private rents, decreasing the likelihood of being able to save for a house deposit.
The report highlights the need and opportunity for a constructive plan to prevent a shortage of employees, such as NHS workers, teachers, and police offers, in these regions.
“We risk seeing professions that are integral to the UK’s public services struggling to afford to rent in several regions in the UK,” said PwC chief economist John Hawksworth.
“It’s not just in London and the South East that rent levels are pricing certain professions out – the East and South West are also unaffordable for many key workers.
“In Scotland and Wales, private rent levels are on average more affordable across professions, with the affordability ratio ranging between 15% and 22%, although this may not be true in hot spots like Edinburgh or Cardiff,” he said.
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 – up £400 from 2017/18.
This means that the country’s median private rent has just crossed over the 30% rental affordability threshold.
The picture varies by region; Southern England, especially London, has rents way above this, making it extremely difficult for key professions to live there.
In London, the South East and the East Midlands, increases in rent have outpaced earnings growth, weakening (i.e. raising) rental affordability ratios over time.
If current trends continue, PwC projects the average affordability ratio in London could reach 47% by 2022/23, from 42% in 2017/18.
Currently, workers in London between 22-29 years of age are spending 53% of their monthly earnings on rent, far in excess of the 30% threshold that is generally considered affordable.
The last five years has seen rental affordability ratios deteriorate and, in the UK as a whole, the amount spent on rent over this period has grown by 8%, while at the same time earnings growth remains relatively weak and below levels seen before the financial crisis.
This is seen as not only having an impact on social mobility, but hindering national productivity growth in the longer term by preventing people from moving to places in the UK where they can be most productive.
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.
While London is generally considered the most expensive place to live in the UK, rents are also unaffordable for many professions in the rest of the South East, ruling out commuting to the capital from further afield.
“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,” said Robert Walker, Partner and UK Housing Leader, PwC.
“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 is impacting 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,” he said.
Kevin Burrowes, managing partner for Clients and Markets, called for “creative thinking” around housing, looking to other countries for inspiration.
“For example, a programme in the Netherlands gives university students free accommodation in exchange for volunteering,” said Burrowes.
“Innovative approaches to property investment will also help, such as crowdfunding that open the property market up to more people, helping in incentivise house building.”