Some of the biggest victims of the housing bubble and subsequent burst are not so-called “hard-working families” who borrowed much more than they could afford when times were good and banks were more than willing to splash the cash. No, those who are really suffering, and at no fault of their own, are the young, hard-working 20 to 30-somethings, living in big cities like London (because that is where the jobs are) who are being forced to pay astronomical rents.
This demographic earn modest annual wages of £20k to £40k, they are not eligible for any sort of government benefit whatsoever, they have to live in the cities because that is where the work is, and they can not afford to buy a flat or a house (unless their parents give them the money, which is often the case) because prices are so high and mortgage lending criteria is so strict.
Demand for rental properties is at record levels, due to the lack of first-time buyers being able to get a foot on the housing ladder, so rental prices have therefore soared.
As a result, many people are forking out more than 50 per cent of their salary on rent, we are talking an average of £400 a week, and landlords are capitalising on the housing crisis.
In London 22 per cent of lettings are over £2,000 a month for a typical two bed property. The core London market, where tenants typically pay between £1,000 - £1,500 pcm, accounts for 37 per cent of the private rented sector.
According to Hometrack, there are two very distinct rental markets - one in London and another for the rest of the UK, with rents in London broadly double those for a comparable property elsewhere. Rents in London were up 9.6 per cent in 2011 and although growth has slowed since , it remains stronger than the rest of the UK.
The continued growth in the capital’s rents reflect the sheer size of the city, the high cost of buying and the corporate rental sector which drives some of the highest rents in the country.
In contrast, demand across other cities is largely domestic, driven by those unable to access owner occupation.
Coupled with high inflation, this situation has seriously reduced the spending power of 20 and 30-somethings, which is arguably harming the economy.
However, Hometrack has said affordability pressures on tenants mean that rental growth is expected to remain relatively subdued in the future as tenants can only afford to pay so much. On average Hometrack expects rents to rise by 2 per cent to 3 per cent in 2012. I certainly hope Hometrack is right.