Analysis shows why London is least affordable for key workers and young homebuyers

The study for the Joseph Rowntree Foundation shows that the asking price for modest homes in the London boroughs of Westminster, Camden, Islington, Kensington & Chelsea and Hackney demands a bigger share of the typical local pay packet for younger workers than any other local authority areas in England.

The presence of Hackney in the top five shows how relatively low local rates of pay place home ownership beyond the reach of young people, even though house prices are not as high as in many other parts of the capital. This important lesson for policy makers is reinforced by the study’s second main finding: that London boroughs and districts in the South East are the hardest housing areas to afford for nurses, teachers, police and social workers. This is because pay rates for these key workers are set at national level with extra ‘London weighting’ that is insufficient to offset higher housing costs.

The national league table of the least accessible housing areas for nurses, teachers, police officers and social workers places Kensington & Chelsea, Camden, Westminster, Hammersmith & Fulham, the City of London, Islington, Richmond and Wandsworth in the first eight places. Altogether it identifies more than 40 districts in and around the capital where a key worker couple, even with two incomes, would find it hard to afford a mortgage.

The study, by Prof Steve Wilcox of the University of York, presents three different ‘affordability’ indices comparing younger workers’ earnings with house prices for 4- and 5-room homes in every borough and district in England. These are:

• Local house price to income ratios, calculated by comparing the average price for starter homes in each district with average local incomes for working households under 40.
• An access to ownership index that calculates the percentage of working households under 40 in each district whose pay is too low to purchase even the least expensive starter homes (the bottom quarter of the local price range).
• A key worker index, identifying local authority areas where a qualified nurse, teacher, social worker or police constable in post for three or four years would be unable to afford the least expensive starter homes.

These analyses reveal that:

• London includes 16 of the 33 local authorities in England where a small home costs more than five times the average annual income of local working households where earners are under 40. These are: Westminster, Camden, Islington, Kensington & Chelsea, Hackney, Richmond, Ealing, Haringey, Hillingdon, Harrow, Tower Hamlets, Hounslow, Southwark, Lambeth, Brent and Barnet.
• The evidence that access to home ownership is more difficult in London than anywhere else in the country is reinforced by the fact that the City of London, Barking & Dagenham and Merton are the only local authorities across the capital where house price to income ratios for younger working households fall below four to one.
• The access index shows 19 areas nationally where fewer than one in five of younger working households could afford to begin buying even the less expensive starter homes in their area. These include the London boroughs of Westminster, Camden, Hammersmith & Fulham, Islington, Brent, Harrow and Hackney.
• The income of a nurse, qualified for 3 or 4 years and working in Kensington & Chelsea, would be barely a sixth of the estimated £134,700 a year needed to buy one of the less-expensive, small homes in the borough. A police constable with similar experience, although better-paid, would still have only a fifth of the income required.
• There are only eight London boroughs where qualified nurse’s pay would provide more than half the income needed to purchase a less expensive starter home. A police officer’s income would cover more than 50 per cent of the required amount in 22 boroughs.

Prof Wilcox said: “These figures provide startling evidence of how the housing affordability crisis is affecting London and large swathes of southern England. The house price boom in the capital and its surrounding districts means that very modest properties are often beyond the reach of young, working households. Even in dual-income households, key workers such as nurses and teachers can only afford to start buying their own home in very limited parts of London.”

Lord Best, Director of the Joseph Rowntree Foundation, added: “This analysis adds a new dimension to the warning we issued a year ago about the shortage of affordable homes in London and the South and the dire long-term consequences if it is allowed to get worse. If existing home owners living in those areas want local hospitals, care homes, schools and police stations to be properly staffed, they can no longer ignore the case for more housing. In the same way, families in these areas will recognise that children, once they become adults, may be forced to move away by housing shortages and unaffordable prices – or else depend heavily on funds from their parents.”