In London, the number of rented homes has just edged past the number that are owner-occupied, according to a report out this month. For the U.K.’s biggest city, this shift from owning to renting is, it seems, just the beginning. According to another new report, the ratio of renters to homeowners in London is expected to be yet greater by 2025, by which time the proportion of renters will have reached 60 percent.
This shift from ownership to shorter-term rental tenancies, one mirrored by trends in the largest North American cities, is likely to have a number of consequences. Being able to afford decent housing in London is liable to become even harder for the average person. At the same time, the growing volume of renters could theoretically force some major changes that would be to their advantage.
First off, we need to be clear about why this is happening, although to be fair the reasons for the shift to renting are so clear they’re probably visible from the moon. London housing simply isn’t affordable. The city’s population is rising fast. In February 2015 it surpassed its previous peak of 8.6 million, which it last reached in 1939. Housing construction has lagged far behind demand, with the proportion of homes built that are actually affordable also dropping. The inevitable result is spiraling home prices. After a rise of 5.4 percent in January 2016 alone, the average home price for the city is now £643,843 ($932,000). The current median annual salary in London now stands at roughly £34,000 ($48,000). This mismatch makes buying a home impossible for most people.
As you’d expect, high prices are reflected in dwindling homeownership. This month’s new figures from the U.K. government show that London now hosts 898,000 households that are privately rented, compared to 883,000 that are owner-occupied. The number of owner-occupied homes in the city has dropped a sharp 17 percent since just a decade ago, when there were a million such households in London. It’s no wonder that renters are now surpassing homeowners. Many of the latter group would themselves never have been able to purchase their homes if they’d started as first-time buyers at today’s prices.
And this is no temporary blip. In 2000, 60 percent of London households were owner-occupied and 40 percent rented. It will, the report cited above predicts, take just 25 years to flip that figure to its mirror image.
So what will the consequences of this change be? Homeownership will increasingly be seen as a luxury. Rents in London are so high—costing an average £743 ($1037) per bedroom in a shared apartment—that saving for a down payment can take decades even for the prosperous. Some middle-income Londoners will now only become homeowners in late middle-age, while many may give up on the idea of owning entirely.
This in itself might not sound unworkable. Some countries, such as Germany and Switzerland, function fairly well with far larger private rental sectors than the U.K. These countries’ housing markets work, however, because tenants have far more and better protections and generally better rental housing standards. In the U.K., tenancies last just a year, and in a seller’s market like London, rental apartment quality can often be poor. If living conditions in the city aren’t to be permanently downgraded, something will have to change to make renting a better, more secure option. As PwC partner David Snell notes in the report:
“With around 60% of Londoners predicted to be renting by 2025…policy will need to adapt. This could include encouraging a better quality of private rented accommodation, including longer tenure periods and more rental properties designed for families.”
London’s housing balance tipping towards renters should help create the pressure necessary to push such changes through. One of the reasons why German tenants enjoy better rights is not because their country automatically favors the underdog, but because the rental tenants’ bloc in the country is larger, wealthier and better connected, and thus more able to petition for its own interests. In pushing for a better deal, London’s renters face an uphill struggle that could take decades, given the wealthiest, most enfranchised people in the city will still be homeowners. Still, looking back in a few years, this month’s news may well look like a key watershed.