Rental Prices, Cost of Living and Migration in London
Introduction
The cost of living and the housing costs in London have been influenced by increased demand for houses. Moreover, immigration to United Kingdom (UK) has also increased the demand for houses. With high demand for houses compared to the supply, the cost of living and rental prices are expected to increase. In addition, the gap in housing costs for houses in London compared to the rest of England has continued to widen (Trust for London and New Policy Institute, 2016). Overcrowding, mainly in the private rented sector, has further increased becoming higher than the rest of the UK. London house prices have continued to overtake those in other parts the UK, with the average property gong for £500,000 annually (Anderson, 2015). Data by the Land Registry indicates that prices of houses increased by 9.percent in 2015, implying that the average London property price is estimated at costs £499,997. The increase in the costs of houses has been as a result of growth in the economic, improved earnings growth, low interest rates, and high levels of employment (Anderson, 2015). The purpose of the report is to discuss about property prices, cost of living and migration in London from an economic viewpoint. The report provides information that can be used by people relocating into the United Kingdom especially London.
The Economic Functioning
a. Demand and Supply
The demand for housing market is partly driven by the desirable global city to move to for greater work, but is also driven by changes in population in terms of births and deaths. A survey conducted by the Boston Consulting Group (BCG) found that more workers around the world would like to come to London than any other places in spite of the cost of living (Williams, 2014). The report further showed that one in six of those participants (16%) wanted to work and live in London, 12.2% in New York, 8.9% in Paris, and 5.2% in Sydney (Kollewe, 2014). Also, the UK has emerged as the second-most attractive country for international workers, after the U.S.
There is a close relationship between house prices and demand as explained by the income and substitution effect. For instance, the price of houses increased by 7% in 2015 to £531,000, it is expected to increase in recent months as result of increased demand (London Housing Market, 2016). With a decline in the employment rate to 6.3% and continued growth of the London’s economy, there has been a change in the level of national income. Employment increase results to increase in income increase hence demand for the property. Moreover, when people have a high wages, they tend to switch from renting to home ownership. With this, the increase in demand for property is triggered. Since 1991 to 2014, the London’s population increased by 23% (equivalent of1.7 million) to approximately 8.6 million, while the households increased by 20% to 3.4 million (Marsden, 2015). Increase in population and households the demand for houses also increases, which is required to match the growing population.
Change in supply is affected by factors such as price, price factors of production, costs, expected future prices, and technology. Regarding house price, the relationship amongst supply and price is certain, with higher prices empowering supply. Rising prices of houses compel house developers to build more lodging, and existing proprietors are encouraged to sell. According to Marsden (2015), when the demand is not adequately satisfied by the supply of housing, the housing costs and house prices are expected increase until when the advantages of living in London are higher compared by the costs. The emergence of new technology to build houses and building materials, then the supply of property is expected to increase, hence lowering the prices. As UK, especially London continues to be the most likeable and preferred city to work in, the price of housing may increase. Thus, supply can be driven by speculative price increase in the property market, leading to increased prices in the future. The figure below shows growth in population, housing stock, and households in London.
Figure 1: Cumulative Growth in Population, Housing Stock, and Households in London. Source: Marsden (2015).
Figure 1 is a combination of the patterns in the number of households, people, and homes in London since 1991. From the figure, all have increased in the recent years with growth in the number of households and populations have increasingly outperformed housing supply. The supply has remained subdued following the outcome of the recession. Moreover, between 1991 and 2014, housing stock in London has increased significantly from 516,000 to 3.4 million dwellings, which is an equivalent 22,435 homes per year (Marsden, 2015). London is facing a major challenge with regard to the provision of sufficient new homes required to meet the demand of the growing population.&
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