Why can't they keep up with the costs?
Despite earning significantly more than the average Briton, residents of the capital are left with less disposable income due to soaring housing costs, a new report has revealed.
According to research conducted by the Institute for Fiscal Studies (IFS) and the Economic Statistics Centre of Excellence, Londoners earn nearly 40% more than the national average. However, after subtracting rent or mortgage payments, their spending on goods and services is 7% lower than that of the typical UK household.
“Our findings challenge the conventional wisdom that the typical London household enjoys higher living standards than their counterparts across the country,” said Gautam Vyas, a research economist at the IFS.
The study highlights the growing financial burden of housing in the capital. Rents in London rose nearly 10% in the 12 months to February, reaching levels almost twice the national average. This surge in costs is severely affecting consumption, even in areas often associated with higher incomes.
In Islington, for example, residents are among the top 10% of earners in the country. Yet, once housing costs are deducted, their household spending ranks in the bottom 5%, underscoring the extent to which housing prices erode disposable income in the city.
The report also notes that London’s property market has become increasingly inaccessible. The average home in the capital costs the equivalent of 11 years of earnings - nearly double what is considered affordable. High property prices, combined with stagnant wage growth and rising rents, are making it more difficult for residents to save for a deposit or keep up with mortgage repayments.
While the analysis shows that Londoners generally save more than those in other regions, researchers pointed out that this trend is often linked to life-stage migration. People may choose to work in London to benefit from higher salaries, but later relocate to more affordable areas, relying on accumulated savings in retirement to sustain their lifestyles.
Even after adjusting for housing costs, London lags behind other southern regions, including the South East, South West, and East of England, in terms of household consumption. It ranks just 2% above the UK average.
How could homeowners in London save for their future? Share your thoughts in the comments below.
