Today is London’s Cost of Rent Day

16 Jul 2024 04:07 PM

Renters in London worked for 197 days for their landlords this year. The 16th of July is the first day they start working for themselves.

London’s Cost of Rent Day falls on 16th July;
Renters in London are working 197 days of the year solely to pay their landlords;
Cost of Rent Day is the day on which, on average, renters in England earn enough before tax to cover their annual rent bill;
This analysis of local areas shows Cost of Rent Day is even later in England’s major cities and the South East;
Specific Cost of Rent Days in local areas in London can be found in the London tab of this spreadsheet.
The average Cost of Rent day in London is the 16th July, more than two months later than the national average, which fell on the 5th May. This means that higher salaries are not sufficient to compensate for higher rent prices renters face in the capital;
This research also exposed gaps in ONS housing statistics that need to be addressed to enable better tracking and understanding of the costs of rent;
It is now incumbent on policy makers to fix the housing crisis, in particular, addressing the shortage of supply of homes.

Cost of Rent Day is a brand new initiative from the Adam Smith Institute (ASI). It is the day on which renters in England stop paying rent and start putting their earnings into their own pocket. This year, the ASI has estimated that every penny that, on average, renters in London earned before tax for working before and including July 15th went to their landlord- from July 16th they are finally earning for themselves.

The ASI has created this measure in order to translate the severity of the housing and rental crisis into simple terms that can be easily understood by all audiences. It provides a useful measure to hold politicians to account and track changes over time.

To calculate the Cost of Rent Day, annual rents were divided by gross annual pay, to understand what proportion of earnings are spent on rent. Cost of Rent Days were calculated for 309 local areas across 9 regions across England.

The ASI also created a tool where users can calculate their own Cost of Rent Day.

As the ASI outlines, the root problem is the lack of supply. Since the 70s, England’s construction of new homes has lagged behind population growth. In other words, new demand has outstripped supply. Even if the government manages to deliver on the 1.5 million new homes by the end of this Parliament, we will still be short of delivering the 4.3 million backlog.

Directly punishing all landlords or introducing policies such as rent controls will only make the situation worse for renters. Instead, politicians must focus on creating the right incentives for developers and landlords, and on increasing supply.

The ASI has previously outlined a number of solutions, which it calls on the government to consider. These include using compulsory purchase orders to buy, and develop on metropolitan green belt land, and give local residents a share of the profit, releasing all green belt land within a ten minute’s walk of a railway station for development, and extending ‘full expensing’ to brownfield sites.

James Lawson, Chairman of the Adam Smith Institute and author of this report, said:

“We all know that rental costs in England are just too high.

But alarmingly, as our research shows, the rental crisis is even worse in our capital city where Cost of Rent Day falls over 2 months later than the national average. This means that higher salaries, which many professionals have historically moved to London for in the first place, do not compensate for the higher rent prices that they face.

In the midst of a cost of living crisis and nearly two decades of stagnation, London’s ‘Cost of Rent Day’ is a damning indictment on the performance of our economy, and our failure to match the demand for homes with supply in the Capital.

Concrete proposals to reform our sclerotic planning system and to deliver the homes we need must be an urgent priority for both the government and opposition parties.”

METHODOLOGY:

To calculate the Cost of Rent Day monthly rents were converted into an annual figure. Then annual rents were divided by gross annual pay, to understand what proportion of earnings are spent on rent.
To balance for leap years and support better inter-year comparisons, a year is treated as being 365.25 days long.
Using otherwise unrounded inputs, this calculation implied 125 days of the year are spent on rent. The 126th day of the year is May 5th.
The ASI used annual gross pay (before fiscal deductions / taxes) to generate these calculations.
This is a deliberately simple calculation and as outlined above and below, will not capture the nuances of individual circumstances. However, it enables a simple, transparent, and intuitive calculation - this is preferable to more complex alternatives we developed.
To produce this analysis, the ASI used two readily available ONS data sources. The analysis is based on the average rent, across all types of rental. The data is broken down by rental type, including a ‘room’, ‘studio’, ‘one bedroom’, ‘two bedrooms’, ‘three bedrooms’ and ‘four or more bedrooms’ properties but this is not used in the headline calculation.
Regional analysis is based on ONS data and segments England into: East, East Midlands, London, North East, North West, South East South West, West Midlands and Yorkshire and The Humber.
The two data sets have common Area Codes, enabling the analysis across the 309 local areas and 9 regions, both data sets have in common, and where there are values.
The Median was used by default for both data sets. When a series of numbers are arranged by order of magnitude the median represents the middle value. The median was chosen instead of the mean, because the data sets are skewed and have outliers.

Further details can be found in the report.

Notes to editors:

For further comment, or to arrange an interview, please contact emily@adamsmith.org | +44 7584778207

The Adam Smith Institute is one of the world’s leading think tanks. It is ranked first in the world among independent think tanks and as the best domestic and international economic policy think tank in the UK by the University of Pennsylvania. Independent, non-profit and non-partisan, the Institute is at the forefront of making the case for free markets and a free society, through education, research, publishing, and media outreach.

James Lawson is Chairman of the Adam Smith Institute. He led on the creation of Cost of Rent Day and is the author of the accompanying report.

The accompanying report to Cost of Rent Day is available here.

The full set of local data can be found here.

The ASI has also published extensive research on the housing crisis. Highlights include: