REUTERS/Toby Melville

Remarkable new details on the effects of the U.K. capital’s bananas real estate market.

London’s red-hot housing market of late is by now an international legend, drip-feeding the media with tragicomic stories of insane pricing on a weekly basis—from the $710 cupboard to the one-bedroom flat on sale for $37 million. Now a new report out this week details some of the harmful social effects that this boom in housing costs has wrought. Unsurprisingly, they are many.

The report, from the independent think tank Centre for London, shows that the rise in housing costs are far more than just a windfall for existing property owners. They are directly contributing to an inequality chasm, not just between London’s richest and poorest residents, but between the city and the rest of the country. The result is a situation where private renters are seeing their post-rent income plummeting, as housing costs gobble up ever more of their salaries. Meanwhile, wealth gains are only happening among the very rich.

Set against a backdrop of falling median wages, the report isolates three key trends gleaned from figures gathered in 2001 and 2011, the last date for which comprehensive statistics are available.

Private renters being pushed into poverty

In London, households that are privately rented now outnumber those that are owner-occupied. And as this table shows, those private renters are getting much poorer.

Between 2001 and 2011, weekly median incomes after housing costs among renters dropped by a worrying 28 percent in inner London and 8 percent in Outer London. Owner-occupiers also saw a drop in income, a reflection no doubt of the greater toll paying a mortgage now takes in the city. The only group that is comparatively better off is people who live in public housing, called social rentersin Britain. Although greatly reduced since the 1980s, London still has a high proportion of social housing—30.9 percent during the period of the study —but supply is still far too little to house the number of people with incomes technically low enough to for it.

Among the Londoners who have managed to hang on in public housing, income after housing costs has actually risen, by as much as 15 percent in some neighborhoods. Yet of all the groups in the city, their weekly income after housing costs still remains the lowest, falling to a median level of £218 ($310) in outer London. The gap between this group and private renters is nonetheless narrowing fast. In outer London, the weekly take-home pay after housing costs of people renting on the private market is only £52 ($74) higher than their neighbors paying rent in public housing. Private renters might have once pitied public housing tenants with no option beyond living in socially stigmatized buildings. Now, with little difference in their median incomes, many private renters dream of getting on public housing lists that are already full.

Part of this shift reflects the changing social make-up of the private housing market. With huge swathes of the public housing sector now sold off to private owners there are far fewer socially rented apartments to go around. As a result, poorer citizens who would have once lived in public housing now rent on the private market, further bringing the median wage for this group down.  

In 2001, 53 percent of all tenants living in poverty (that is, below 60 percent of median income after housing costs) were living in public housing. By 2011, this proportion had dropped to 39 percent, with a corresponding 10 percentage points rise in poverty among private renters, from 23 to 33 percent. In total there were 420,000 more privately renting Londoners living in poverty in 2011 than 2001.

There’s still no doubt that it is skyrocketing rents that have bitten the biggest chunk out of private renter’s income. You can see evidence of this in the greater income drop for this group in higher-rent inner London, where renters were in real terms earning £132 ($188) less a week in 2011 than they were in 2001.

Pumping up wealth disparities across the U.K.

London’s galloping housing market is creating a close-to unbridgeable gap between the city and the rest of the U.K. Among the wealthiest 10 percent of British citizens, wealth has shot up. But while there has been a marked wealth increase in this group across the country, wealthy Londoners have still sped far ahead of everyone else. With a growth in wealth a third higher than their counterparts elsewhere in the country, the top ten percent of Londoners saw their wealth increase by an average of £200,000 ($285,000) between 2001 and 2011.

This increase was unquestionably powered by property prices. Outside London, the report finds, the top 20 percent of the population’s wealth in terms of property has actually dropped by 2 percent. Yet in London, it has risen by 24 percent, meaning the average person in this group has seen the value of their property rise by an average £130,000 ($185,000) over the report’s study period.

At the same time, London’s poorest citizens are now worse off than those elsewhere, at least when the rest of the U.K. is taken as a whole. The nominal wealth of the bottom 20 percent in the city has grown by a sliver, even smaller than that of people living elsewhere in Britain. In fact, as figures cited elsewhere in the report make clear, the overall wealth of the poorest 10 percent dropped between 2001 and 2011.

The suburbanizaton of poverty

As Citylab has already reported, London is undergoing a wealth inversion that is turning the 20th century geography of its wealth distribution inside out. Historically poorer inner boroughs such as Islington and Hackney have seen wealth levels rise sharply, with a corresponding rise in poverty in outer boroughs such as Brent and Enfield, once thought of as leafy places of escape from inner city deprivation. That wealth spike in inner London might seem to be possible evidence of general enrichment of the existing population. However, the rise in wealth has come alongside a rise in the city’s proportion of skilled workers, suggesting that longstanding, generally less highly trained working class residents are simply being pushed out. Another marker that suggests displacement is change in the number of welfare claimants, the majority of whom in the U.K. are actually employed but still earn too little to meet their basic needs. As this map shows, the growth of this group is overwhelmingly based in outer London.

Not all these changes are related to displacement. In real terms, London median wages fell between 2008 and 2015, pushing more people already living in the suburbs (including owner-occupiers) closer to poverty.

Is London coming apart at the seams?

The potential consequences of the growing inequality chasm being created by London’s housing crisis are numerous. In many ways, they are already upon us. A city which in the past often combined private middle income housing with public estates is now seeing a polarization that is segregating London’s classes. Housing issues have already spun into open conflict, with low-income housing campaigners fighting to prevent the city’s remaining public housing being sold off to developers. As conditions worsen, direct protests against unaffordable housing are even spreading to people who may, in the long-run, possess relative privilege. Students at the prestigious University College London are currently on a rent strike for dorm accommodation they say is exploitatively priced and in poor condition.

A far larger phenomenon than protest, however, is exodus. In the past two years, the number of Londoners over 30 leaving the city leapt by a quarter. For many, it seems that living in the city is no longer an option. Faced with hard-to-manage costs, people whose careers allow them to will vote for their feet. Those that have to stay, meanwhile, will either hang on in London’s remaining social housing or squeeze into ever smaller spaces to manage the cost of rent. New housing is being built in London—it’s just neither enough nor meaningfully affordable, even when billed as such. Perhaps the most frustrating conclusion to draw from Centre for London’s report is that, despite the steady rise in London’s housing-fueled inequality since the millennium, so little has been done to alleviate, let alone solve the housing crisis that threatens to engulf the city.

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