Editor’s note: This is the first in a pair of stories exploring London’s extraordinary housing market. It is part of our Divided Kingdom series, which examines the tensions and disparities of modernBritain.
LONDON, UK — The shimmering towers of One Hyde Park — the high-end Knightsbridge development whose $200 million apartments and secretive residents have attracted worldwide attention — may seem worlds away from the modest terraced houses that far more Londoners call home.
But in a chain that snakes from the plushest penthouses of Knightsbridge to the council houses of Enfield, the influx of wealth into the city center is changing life for everybody.
For a vanload of reasons, housing costs in this city are rising at an astronomic rate — faster than wages and far faster than the city is building new homes to keep up with its ever-expanding population.
That’s great news for investors from around the world, who have snapped up London’s prime central properties without seeming to glance at the eye-popping price tags.
For those for whom a two-bedroom, $8.1 million pied-a-terre in Belgravia is out of the question, however, London’s housing crisis is reshaping lives and neighborhoods.
As well-heeled investors pour into the poshest districts, thwarted buyers moving into once-affordable parts of London are shoving former residents to ever-farther corners of the city.
And though more and more people are moving into the UK’s capital of more than 8 million people, the city is failing to build enough homes to keep up. For the last several years, additions to London’s housing stock have run at only about 50 to 60 percent of the annual population growth.
With demand far outstripping supply, London’s housing market has not gone through the post-crash corrections that wages and other living costs have.
Rents in the capital rose 8 percent last year — eight times faster than wages.
The average selling price of a home in greater London — a sprawling area that includes neighborhoods up to two hours’ commute from the center — rose nearly 10 percent over the last year to $575,000, even as prices fell across the rest of the UK.
The ever-increasing cost of housing has placed home ownership out of reach for an unprecedented number of Londoners, and is pushing people out of neighborhoods where they have lived for years.
Krissie Nicolson, 37, has lived in the London borough of Hackney for 16 years. Her first shared flat in the once-grungy area was $600 per month. She’s now facing a monthly bill of more than $1,600 for a shared place. A single mother who works as a community organizer and a bartender, Nicolson is looking at places in farther, cheaper parts of the city.
“We don’t want to move out of here but we’re going to have to,” Nicolson said, her frustration evident. “I’ve got a master’s degree, for Christ’s sake. My friends work their fingers to the bone just to earn enough money to stay housed.”
She is not alone.
“People who have grown up in a local area and are very much part of that community can no longer send their children to the same schools, attend the same churches,” said Dave Smith, lead housing organizer at the advocacy group London Citizens. “You’re seeing working-class and increasingly middle-class families being pushed further out.”
Those families are competing for a small pool of available housing. For reasons including an abundance of red tape, local resistance to home building and a post-crash construction slowdown, London has been replacing its aging housing stock at a far slower rate than its population is increasing.
In December, respondents to the semiannual London Business Survey ranked the shortage of housing as one of the biggest threats to London’s competitiveness. The Institute for Public Policy Research, a London-based think tank, forecasts a 325,000 deficit of homes in London by 2025.
When new units do become available, demand is overwhelming. The set of apartment towers that served as the athletes’ village at last summer’s Olympics were sold after the games to a residential developer. By January, more than 17,000 people had applied to rent or buy one of the 2,800 apartments, the Evening Standard newspaperreported.
Fewer people are able to scrape together the cash for the 25 percent deposits expected of buyers today. The rate of home ownership in the capital has plunged nearly 9 percent since its peak in 2000, according to the HomeOwners Alliance.
The average age of a first-time homebuyer in London is now almost 40, said James Pargeter, a partner at Deloitte Real Estate.
The city is working on a range of policies to correct the problem, a spokeswoman for London Mayor Boris Johnson said. The mayor has earmarked some $400 million for affordable housing schemes across the city, and a review of the rental market is currently under way.
The UK government is also working on several programs to encourage home ownership. Starting in 2014, the Help to Buy mortgage scheme will guarantee mortgages on purchases with only a 5 percent deposit, though some think tanks have cautioned that the policy could re-inflate a housing bubble and leave taxpayers on the hook for its collapse.
The perception remains that these efforts fall short.
“We all know supply is the real issue. There is just not enough supply and too much demand,” said Ade Sofola, manager of the 4n10 project, which campaigns on behalf of the estimated 400,000 London children living in overcrowded homes. “If we could rebalance that equation we could navigate our way out of here, but it needs some pretty big strategic thinking.”
The problem was an easier one to ignore when only poor or working-class people were unable to get onto the housing ladder or remain in their old neighborhoods. As the stress of London’s housing crisis has drawn in middle-class families and even the children of the well-off, the calls for change have grown louder.
“I think people recognize that it is a problem facing the full spectrum of society,” said Pargeter of Deloitte. “As the wealthier, older generation see their families starting off their careers and unable to buy, it’s hammering home the message that there’s a significant problem.”