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Capital gains? Taking on London’s living standards challenge

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Conor D'Arcy's presentation from Resolution Foundation's event with Sadiq Khan.

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Capital gains? Taking on London’s living standards challenge

  1. 1. Capital gains? London’s living standards challenge Conor D’Arcy @conortdarcy January 2016
  2. 2. The living standards recovery in London 2
  3. 3. Employee pay has been squeezed hard in London since the downturn and continued to fall in 2015 3 While the pay squeeze ended in UK as a whole and in most regions/nations in 2015, London was one of three parts of the country in which median pay fell again Typical pay in London remains much higher than the rest of the UK though
  4. 4. Though 2015 did see above-inflation pay growth for low earners in London 4 The National Minimum Wage rose by more than in recent years which explains much of the strong growth at the very bottom of the distribution Lowest paid Highest paid
  5. 5. Opposite is true when it comes to jobs with London’s below-average employment rate rising rapidly of late Despite this improvement, London’s employment rate remains well below that of the best-performing UK areas London performs particularly poorly on employment rates of mothers, and those with low qualifications in Inner London 5
  6. 6. Together, these trends have meant typical London households experienced a ‘less slow’ income recovery 6 There has however been much variation in the size of the income squeeze Median working- age households remained 3% below their pre- crisis income level in 2013-14 while median pensioner households were 12% above
  7. 7. After housing costs however, the income of typical London households have been squeezed the most 7 The gap between working-age and pensioner households is wider on this measure, with working-age households 8% below 2007-08 and pensioner households 14% above, thanks to their lower housing costs
  8. 8. One-in-eight London households spend more than half their income on housing costs That proportion rises to one-in- four among private renters Improving the affordability and security of PRS crucial as now takes a low-to-middle income first time buyer in London 44 yrs to save for a deposit vs. 24yrs in UK 8
  9. 9. And housing is a key driver of London’s large wealth inequality 9 Households at the 75th wealth percentile hold 23 times the wealth of those at the 25th percentile in London vs. 10 times in Great Britain as a whole London’s wealth has recovered strongly but property owners have been main beneficiaries
  10. 10. Despite London’s higher pay and house prices, typical wealth is only slightly higher than GB average Again, housing plays an important role with 52% of Londoners renting compared to 34% in England excl. London 18,000 homes were completed in London in 2014- 15; need estimated at 50,000-80,000 additional homes per year 10
  11. 11. What’s on the horizon for living standards? 11
  12. 12. The ‘National Living Wage’ is set to be less transformative in London than the rest of the UK 12 Though the NLW is projected to benefit 570,000 employees in London by 2020, impact is likely to be smaller than in most cities High housing costs also mean it does less for low-income households in London
  13. 13. The NLW is projected to have little effect on the share of workers that are low paid in London 13 The ‘depth’ of low pay however is set to fall in London Debate around the Living Wage in London remains crucial with RF commissioned to review aligning the methodologies underpinning the two Living Wage rates
  14. 14. As interest rates begin to creep back up, Londoners likely to be more exposed 14 London households are more likely to say they are very concerned by their current debt level (10% vs. 6% GB average) But house prices have held up better in London meaning low/negative equity is less of a problem in the capital than elsewhere
  15. 15. Summary • On some measures, particularly employment, London’s performance of late has been strong but much weaker on others e.g. pay • Affordability of housing continues to be a worry for millions of Londoners • The National LivingWage will boost the pay of over half a million workers in the capital but not solve low pay problem • Interest rate rises may prove more challenging for Londoners than borrowers elsewhere in the UK 15