Rents Rising Faster than Pay Rises

If it seems to you as though rents are rising faster than wages, you’re not imagining it. Recently released data shows that private rents across England have risen by 16% in the last 7 years while worker pay has increased by only 10%. Wages are most certainly not keeping up with the rental market.

The Shelter charity notes that the most serious disparities between rental rates and worker income exists in the greater London area. But the charity also says that the problem is spreading into Middle England as well.

For people who have no other choice but to rent, this is a troubling trend. Workers unable to find affordable properties in major metropolitan areas have always had smaller towns and the countryside to fall back on. But even that strategy is no longer reliable.

The Worst Areas in the UK

What we know about the housing market would seem to dictate that the disparity between rental rates and income is not equal across the board. In other words, there are some regions of the country where the problem is more severe.

In reporting on the recently-released data from Shelter, the Mirror demonstrated as much by ranking the top 20 areas in England with the most profound rental rate problems. At the top of the list is Barking and Dagenham. Average rents there have risen some 42% as compared to a 2% increase in household wages. That makes for a difference of 40 percentage points.

Rounding out the top five are Elmbridge, South Oxfordshire, Dartford, and Kingston upon Thames. In three of those regions, household wages have actually fallen since 2011. Yet rents have continued to rise.

No Better in London

What happens in London tends to spread across most of the rest of England, so we would expect comparable numbers for the rental market in the capital. According to the Independent, the rental rate for a typical two-bedroom flat in London has outpaced earnings buy nearly three times since 2011.

That 2-bedroom flat had climbed to £1,500 per month by the end of last year while earnings increased by just 9%. Things outside the city proper haven’t been much better. Rental rates for 2-bedroom flats are up more than 30% in 16 of London’s 33 boroughs.

Worst in the greater London area is Greenwich, where rental rates have jumped some 50% as opposed to wage increases of just over 7%. The numbers clearly show an untenable situation among workers who simply don’t earn enough to both pay the rent and put money away for a downpayment on a house.

Possible Solutions

It is clear we have a problem in England where rental properties are concerned. The Guardian notes that the number of household now renting privately has increased by 74% since 2007. Private sector rentals now account for 20% of all English households.

As for renters, they are spending roughly 41% of their income on rent alone. Their home owning counterparts spend a mere 19% of their income on mortgage payments. The disparity shows a stark reality: although it may be cheaper to own a home and pay a mortgage, it is too expensive to actually get to a place of home ownership.

So, what is the solution? Several have been suggested by politicians, business leaders, and housing advocates:

1. Build More Social Housing

Housing crisis discussions are almost always accompanied by calls to build more social housing. This is nothing new. We have been discussing the merits of social housing and the need to build more of it for decades now. Some say that the time for discussion has long since passed. They say that the only real solution to the housing crisis is for the government to step in and build more affordable housing.

2. Three-Year Tenancies

The Guardian reports that some 80% of current tenancies in England and Wales are set at either 6 or 12 months. The government has proposed new rules that would give tenants 3-year deals that would still allow them to leave early. As the thinking goes, 3-year tenancies would prevent landlords from evicting on short notice and slow the rise of rental rates at the same time.

3. Higher Wages

Another proposal seeks to encourage employers to increase wages in order to give workers more to spend on rent. How such a plan would actually work is anyone’s guess. It may not be feasible to force employers to tie wages to rental rates and, even if it were, arbitrary regulation of worker wages tends to have a negative impact on the national economy.

The Consequences of Inaction

None of the proposals intended to fix the rental rate problem is perfect. Quite frankly, the only solution likely to work will be a combination of all the current proposals and some yet to be revealed. The fact is that the current housing crisis is far more complex then simply the disparity between rental rates and wages.

What we must not do is ignore the problem in hopes that it will go away. The consequences of inaction could be too steep to overcome if we allow them to occur. Among those consequences is the inevitable rise of homelessness.

When people cannot afford to rent, they also cannot afford to save money to buy a home. Their only remaining choices are social housing and homelessness. Continuing to ignore the problem will only put more stress on already inadequate social housing, thus leading to fewer available houses and a higher risk of homelessness.

Another consequence is the inevitable migration of workers away from unaffordable urban areas. Although the problem of high rental rates is spreading across England, it is still note severe in London and other urban centres.

Mass migration away from those urban centres will result in a depleted workforce. In turn, businesses that rely on lower-paid workers will have to relocate as well. The gradual decline of our cities will follow.

The numbers don’t lie. Rental rates in England are rising faster than wages. It is an untenable situation requiring a solution sooner rather than later. The only question is whether or not those who have the power to make the necessary changes actually have the will to do so.