Are London house prices on the rise? It depends on where you live…

london 1Whether it be recent property price increases, or the infamous ‘help to buy’ scheme which will see the Government help potential buyers ‘take the plunge’, the issue of housing is never far from both the Government and general public’s lips. And now with a supposed house price recovery taking hold I thought it worthwhile to look at the part of the country leading the way in terms of growth, London.

According to the Land Registry, the UK capital has seen prices increase by 8.7% in the last 12 months, with the rest of the UK seeing a rise of 3.1% in the same period. One could therefore be forgiven for thinking that in terms of buying a first property, or making an investment (or perhaps both) London is the place to go. However, if we dig down into the figures, we see this isn’t necessarily the case.

Whilst the 8.7% figure represents the average across the whole of London and its 32 boroughs, there is considerable variance depending on which part of the City you’re looking at. Although boroughs such as the City of Westminster, Kensington and Chelsea (where by the way the average home price is £1,180,367), Ealing and Richmond upon Thames are all pretty close to the London wide average, many others are not.

One borough, Newham, has in actual fact seen a drop from 12 months ago of 0.8% which is on a par with the worst decreases in the country, seen in the North East and North West (0.8% and 0.7% respectively) whilst further east in Havering, homeowners have seen the price of their properties increase by just 0.8%. Others parts of London too have seen much more modest rises than the City wide average; Barking and Dagenham has seen an incline of 2.9% whilst up north in Harrow prices are up by 3.4%. Both of these rises are pretty close to the UK wide average.

At the other end of the scale, Hackney, Waltham Forest, Wandsworth and Lambeth have all seen increases of more than 10%, Lambeth being the ‘winner’ here with remarkable rises of 13.1%. The table below illustrates house price growth and average property price for a 12 boroughs.

Borough Property price growth (%) Average property price
Lambeth 13.1 421,403
Wandsworth 12.3 476,685
Waltham Forest 12 282,746
Hackney 11.6 475,522
City of Westminster 9 846,881
Kensington and Chelsea 8.2 1,180,367
Ealing 8.1 367,563
Richmond Upon Thames 7.9 512,284
Harrow 3.4 317,746
Barking and Dagenham 2.9 220,322
Havering 0.8 262,584
Newham -0.8 229,682
Source: Land Registry. Refers to October 2012 to October 2013.

Thus, many things can be said about these striking figures. One thing that sticks out for me is the wide variance in house price rises between different boroughs which means that it would be unwise to assume that wherever you go in London you’ll be ‘safe’ (in terms of house price growth.) It’s noteworthy that Newham can be seeing price decreases whilst bordering Waltham Forest has rocketing growth rates of 12.3%.

Numerous questions therefore flow from this analysis; not least, what is driving this difference in house price change? Is it simply demand, or are there other factors at play? If the latter, what are these factors? Are we happy that prices on average are increasing by 8.7% in London whilst in other parts of the country (the North East and North West) are seeing price decreases? Are different house price performances across the country (and indeed within London) inevitable or is intervention necessary? What should any intervention look like? I could go on.

On a side note, it’s staggering that average house prices in themselves in London vary so much within just a few miles.  For example, despite being about 5 miles away from one another, average house prices are about two and half times the price in Chelsea and Kensington of what they are in Wandsworth and over five times what they are in Newham! Even when you take the mega expensive Chelsea and Kensington out the equation, average house prices in Hackney are more than double than in Barking and Dagenham. Hence, house prices can vary hugely depending on the borough in question.

All in all, its striking that house price changes can vary so widely within London, as well as prices themselves. It’ll be interesting to see how the picture changes as time goes on and how such varied findings will affect the social, economic and ethnic make-up of the capital. Amongst many things, those in power should consider whether the findings seen here are resulting in certain individuals and families being priced out of certain areas, and out of home ownership as a whole. Thus, is the aspiration of home ownership now out of reach for millions in the Big Smoke?

Tackling ‘traditional breadwinner’ family poverty

ID-10047327The following article is a response to the new Joseph Rowntree Foundation report ‘Taclking in-work poverty by supporting dual-earning families.’

The Joseph Rowntree Foundation (JRF) and The Institute for Public Policy Research (IPPR) has this week published a new report which has found that families with one working parent and non-earning parent (or what they call ‘breadwinner families’) are the largest group of households with children living in poverty. As such, they have called for the following:

a.)    More efforts to be made to incentivise the second non-earner back into paid employment.

b.)    An increase in childcare provision (which the Coalition Government and Labour Party have embraced) so that both earners can work longer hours.

c.)     More shared responsibility for parenting and working.

Whilst focus on this often forgotten (in terms of public policy) group is welcome, with much to commend the JRF and IPPR regarding this new publication, there are a number of disputable points.

Before I discuss these however, it’s worth saying that the fact that one-earner couple families are at particular risk of poverty shouldn’t really come as any great surprise. CARE, a Christian social policy charity who for a number of years have conducted research into family taxation, have highlighted the unfairness these families in particular face in terms of tax and benefits both domestically and internationally. A one-earner couple with two children on the OECD average wage for instance (who would be in the lower half of the income distribution) faces a tax burden that is some 42% greater than the OECD average. Even worse, poorer one-earner families on 75%, 50% and 36% (the UK 2011 minimum wage) of the average, face Marginal Effective Tax Rates of 73%. This means that for every extra £1 a primary earner receives (through overtime for example), they would only see 27p come into the household.

This latter point is especially important in the context of this new JRF research because as noted earlier, they argue incentives for second earners need to be improved in order to tackle the poverty facing these families. However, in light of the figures cited by CARE this is rather puzzling. Why not also focus on bettering incentives for primary earners? After all, it is these who are already participating in paid employment, and focusing efforts on these earners would help enable families who have chosen this household structure to remain so, whilst also potentially increasing their amount of take home income, thus helping alleviate any financial problems.

Indeed, in light of figures from the Department for Work and Pensions obtained for CARE, which suggest that of all one-earner couples 61% in the UK have at least one child under the age of 5, significant caring responsibilities, or disabled person within the household, getting the non-earning spouse or partner into work might not be preferable or possible.

Whilst it is to the credit of the JRF that they acknowledge that many households make a deliberate and informed choice to have one spouse/partner stay at home and the other work, they argue that policies designed to help them, such as raising the income tax threshold and introducing a transferable tax allowance for married couples are poorly targeted. Whilst this may be true in the case of the former, with the Institute for Fiscal studies (IFS) demonstrating that most of the benefit goes to those in the upper half of the income distribution, it isn’t true for the transferable allowance, the IFS again demonstrate that in the case of this policy, most of the benefit would go to those in the lower half of the income distribution, although increases in the income tax threshold might lessen the impact on one-earner families in poverty. Nonetheless, the Government should be looking to significantly increase the generosity of its recently announced transferable allowance policy, which would mean the non-earner would be able to transfer more (or ideally all) of his or her unused tax allowance to their spouse or partner.

Further, it’s disappointing that the report doesn’t do more to moot policies that help one-earner couple families in poverty while allowing these families to remain as such. Why not mention income splitting, a measure which currently operates in Germany which would allow both spouse’s income (or lack of) to be taken into account when deciding how much tax is payable? This measure whilst significantly helping poor one-earner households lower their tax bills (thus alleviating their poverty) could also be optional, meaning that dual earner couples or those who wished to be taxed separately could continue this arrangement. Britain could also consider implementing spousal tax reliefs or credits which give financial recognition to the non-earning spouse. If the UK was to implement something along either of these lines, it would be doing what many nations (Germany, Belgium, Denmark, Norway, Poland and the USA for example) already do. Thus, it’s clear that there are a number of viable policy options out there to help one-earner couple families without them having to become dual earner households.

Moving on, it’s encouraging to see the report mention the long hours’ culture that is prevalent in many one-earner couple families. The authors are right to call for more to be done to help fathers play a greater part in family life. Again though, I believe this could be done without changing the entire structure of these families. Why not consider for instance tackling the crippling primary earner incentives mentioned earlier? Doing so could have a positive effect in helping fathers keep more of their earnings and thus perhaps lessening their need to take on extra hours in order to financially provide for their families.

All in all, whilst it’s encouraging to see the IPPR and JRF raise the issue of one-earner couple family poverty and associated issues (such as the long hours culture and a lack of paternity leave), I believe there are viable policy responses which could help these families whilst also allowing them to remain one-earner couple families. Unfortunately, the authors have given scant attention to such options, or neglected to mention them altogether. What is more, in pushing for more dual-earner households, the unpaid work and efforts of stay-at home parents in caring for loved ones is in real danger of being undermined on a socio-political level. Thus, for those in poverty that genuinely wish to remain one-earner couple households, governments should consider ways in which support can be given to these families so that their poverty can not only defeated but so that they can continue to structure their families in a way which they see fit.

Low Pay Britain – Is the Living Wage the answer?

This week marks the launch of living wage week, which according to Citizens UK (the organisation responsible for the Living Wage) is a celebration of the living wage and living wage employers. As such, it appears to be garnering a good deal of publicity on social media (it has its own hashtag don’t you know?!) and has attracted attention from the political and media elite. Indeed, Ed Milliband earlier this week pledged to give companies who pay the living wage a 12 month tax break of £1,000 per employee. Labour have also launched their ’Living Wage plan’ which the party claim will help businesses raise wages for millions of low-paid workers, whilst also help the ‘next Labour Government’ cut social security bills for the taxpayer.

Those who have opined about the Living Wage haven’t just come from the ‘Red Corner’ though, Mayor of London Boris Johnson has also expressed his support for the measure, saying ‘Paying the London Living Wage ensures hard-working Londoners are helped to make ends meet, providing a boost not only for their personal quality of life but delivering indisputable economic dividends to employers too.’ Other Tory MP’s are also said to be considering ways in which they can encourage the Coalition leadership to support the wage. Thus, it’s fair to say this proposal has a good deal of cross-party support

For those unaware, the Living Wage is an hourly wage which supporters argue to be the wage required for an individual to earn a basic standard of living. It has just been uprated to £8.80 for London and £7.65 for those living elsewhere in the UK. It is my contention that those of all political colours should be interested in both this initiative, and the wider issue of low pay in general for a whole plethora of reasons. Not least, as I noted last week, poverty in Britain isn’t just confined to those out of work, but those in-work too. Ex-Labour Minister Alan Milburn in his recent social mobility report revealed for instance that two thirds of those in poverty are actually in work. This is bad news for a Prime Minister who wants Britain to become an ‘Aspiration Nation’ and for a Party who at its very core believe in the value of work as a way of pulling one’s self up out of poverty. That’s even before we mention the negative effect that arguments around money can have on marriage and family life!

The question is though, is the living wage the answer to the ills currently facing ‘low pay Britain’? Whilst I believe wages should be a key part of any solution, hence why I am personally in support of this measure in principle, the Living Wage cannot be seen as the cure in and of itself, this is so for at least two reasons, and they relate not to the wage directly but the current Tax and Benefits system surrounding it.

Firstly, there is the issue of how much someone would actually see come into their household from any increase in hourly wage. Let’s assume for instance that a London based employee is working full time on the minimum wage (currently £6.31 per hour) and earning about £247 per week[1], which works out at £12,865 per year[2]. Let’s then say that their employer decides to introduce the London Living Wage, resulting in an increase in their hourly rate to £8.80, which represents an increase of £2.49, how much of this rise would the employee see come into the household? Well in short, not as much as you might expect. Due to Income Tax and National Insurance increases and tax credit cuts (the most important factor of the three), the household would only see around 27 pence come into the household. [3] This, I feel, is something that is often missed in the debate regarding low pay and increasing earnings. Only when families in the lower half of the income distribution are able to keep more of their wages, supported by a benefits system that better supports families as they move up the earnings ladder will we see progress in this area.

This flows neatly onto the second area, the family. I note with interest that the living wage of £7.65 (the London rate is calculated separately by the Greater London Authority) would according to the Minimum Income Standard (MIS)[4] which is considered when calculating the Living Wage outside of London, would cover 93% of the MIS for a single person without any children (they would need about £8.27 per hour[5]). However, for one-earner couple families with children, where for example one person is at work and the other is at home with unpaid caring responsibilities, the wage doesn’t go nearly far enough. A family structured in this way would need to be earning about £17.68 per hour in order to reach a MIS[6], meaning the living wage outside of London would cover just 43% of the costs required for a MIS.

This stark reality means that it any debate in how to deal with the problems of low pay and poverty, we have to realise that different households require different levels of income. Put like this, this sounds like basic common sense, however too often it seems that income is viewed on an entirely individual basis. That is, in assessing how well off someone is, we often disregard family responsibility. This matters hugely because even when tax credits (the sole way in which we financially recognise family responsibility today) are taken into account, the levels of income required for different households are very different. Put another way, all other things equal, an earner with no spouse/partner will require much less to live on than an earner with a spouse/partner with children. For this reason, as CARE’s recently published ‘independent taxation – 25 years on’ says, different households on the same income, will be at very different places in the income distribution, even when tax credits and child benefit are taken into account. Take a look at the graph below which illustrates this point.[7]

Likely position of households in the income distribution in 2013/14

income dist chart

To conclude, it is my view any strategy tackling low pay and associated in-work poverty must include a wage that sufficiently provides for the needs of those who earn it. That is why in principle I am in support of a Living Wage. However, as raised in this article, there are at least two issues that should be overcome in order to essentially make the Living Wage better and more effective in tackling low pay and in-work poverty. The first is the issue of the UK’s high effective marginal tax rates, which effect many families with children. These frankly prohibitive rates mean that even if a low earner was to see an increase in their hourly wage to the Living Wage, they wouldn’t see that much come into the household. Secondly, we must see wages in light any family responsibilities and not on a purely individual basis.  If we do latter, the Living Wage whilst potentially significantly benefitting those without children in particular, is in danger of making an unacceptably small impact on those with family responsibilities. Whilst I recognise that a Living wage for one-earner couple families might not be able to reach the levels mooted earlier, why not still consider having different Living Wages for different family types? This would go a long way in demonstrating that different families have different financial needs. All in all then, rather than being an idea that needs throwing out altogether, the Living Wage, albeit with some modifications can be something that is effective in the war against low pay.

[1] Based on someone working full time (39.1 hours per week according to the 2012 ASHE survey)

[2] £247 divided by 7, multiplied by 365.

[3] According to Department of Pensions Tax Benefit Model Tables, which have been modified for the tax year 2013/14.

[5] This figure is based dividing the living wage outside London by 7, multiplying by 365 and calculating the what proportion of the Minimum income Standard for a single person without children this figure would cover

[6] Calculated as above, but for a one-earner couple with a child aged 2-4, and a primary school aged child

[7] Taken from ‘independent taxation – 25 years on. Does it meet today’s needs?’, Draper and Beighton, 2013, CARE, Chart 2.1, p.19.