London has always been a demographic conveyor belt. Every year, it pulls in tens of thousands of recent graduates. They spend a decade or so climbing the professional ladder in the hope of making enough money to get on to the housing one, and then in their thirties many of them bid the capital farewell as they discover they’ll have to look farther afield to afford a place big enough to start a family.
Over the past few years, ever-tighter housing supply has accelerated that conveyor belt and the effects are becoming startlingly clear. The number of new housing starts in London has been on a steady downward trend since late 2015, and a fresh 30 per cent year-on-year drop in the first quarter of this year took it to its lowest level in a decade apart from in the depths of the pandemic. Prices and rents have, unsurprisingly, rocketed.
Older readers or those from elsewhere in the UK may be wondering what all the fuss is about. Surely London graduate salaries can pay for London graduate housing? But this stereotype has not been true for some time.
If we only look at incomes, London households make about 15 per cent more than the rest of the country — but subtract housing costs, and a household in the capital is no better off than the national average. This is especially true for those headed by people aged 25-39, for whom housing costs amount to 36 per cent of net household incomes, almost double the burden for the same age group 30 years earlier.
Would-be buyers and renters are both in difficulties. The house-price-to-earnings ratio gets a lot of attention, but while many graduates are doing fairly well on incomes, it is wealth — specifically deposits — that they struggle with, especially now that the days of 95 per cent LTVs are largely a distant memory. By my calculations, it takes the average London first-time buyer 15 years to save for their deposit (unless they are helped by a particularly well-capitalised bank of mum and dad). It took their parents’ generation just four.
For renters, there are 40 per cent fewer properties available for new tenants in London compared with five years ago, according to Zoopla. The crunch has been especially vicious in the last year, as the brief pandemic-induced bump in supply rapidly swung back. Prospective tenants are facing 15 per cent year-on-year increases in rent, compared with 9 per cent in the rest of the country.
This has had a dramatic impact on the age group that would have historically bought or rented many of these properties. While London’s total population has grown by about 3 per cent since housebuilding went into reverse, the number of people aged 25 to 39 in the capital has dropped by almost 4 per cent — or 82,000 — after rising steadily for decades.
The number of 25- to 39-year-olds, who represent the first-time buyer demographic, has not declined in any other UK nation or region. London’s 4 per cent decline is made up of those who would historically have managed to stay in London, but have been forced to move elsewhere.
When you lose first-time buyers, you lose what often follows those first house purchases — children. In the five years between 2016 and 2022, the number of kids in nursery or Year 1 in London dropped by 8 per cent, almost twice as steep a decline as seen anywhere else in the country.
As a result, the city’s school closure statistics now echo those of rural Japan. Twenty state-funded nurseries or primary schools were closed or merged in the capital between 2017 and 2022, including five in the borough of Tower Hamlets alone.
As a result of all this, London has aged more rapidly than any other part of the UK since 2015, its median age rising three times faster than the UK average.
Like a parasite, the undersupplied and overheated housing market is consuming the fruits of Londoners’ labours before they can ever be enjoyed, and pushing away multiple generations of talent from the nation’s most productive city. It is already too late for thousands of these lost families — but without a huge leap in housebuilding, Britain’s capital risks losing more of the youthful dynamism that made it great.
john.burn-murdoch@ft.com, @jburnmurdoch