London Rent vs. London Salaries
johnmathews.eu
johnmathews.eu
It might seem strange that on someone's good sounding salary they can't make ends meet, but if you factor in all the nearby (<1hr walking or spending <£5 on public transport) stuff that's practically free and wonderful then on their salary they're still living one of the best goddamn lives in the world.
I live in South London, not within walking distance of any tube line, but I still have three cinemas, one major, two independent, near me. The cuisines of a huge swathe of the world, shops for things I did not know existed, and the world's major and up and coming acts performing in hundreds of locations that cost me little or nothing to get to (and often little to attend, the big museums are free, universities do tons of free stuff, the Royal Opera House and similar have ~£15 tickets, and I can ignore the cost of traveling to London).
This city is expensive if you look purely within the walls of your home, if you can get out into it, it's like having a comprehensive subscription to a better cultural network than you can imagine.
It's indeed true that prices are indeed inflated by the London-centric nature of a lot of the culture, and purely financial investments in property.
Apologies for sentence structure and formatting, this post impulsively written on my phone.
If you move further out then expect to pay as much as 5000£ per year to commute.
Umm, that's pretty cheap for a commuting train pass in London! It's usually way more. Double that at least.
Thats very subjective. No easy access to mountains and proper outdoor sports. Not very friendly people. British weather. Much of your time is spent on the underground. So it really depends on what you value in life. (Personally I am not a fan of London).
Moving to a rural area, or even farther out into the suburbs, would absolutely help OP's financial situation out. Hopefully he can find a new job or work remotely. Or, if he wants to stay in London, he'll realize the value of things he would miss.
Transport back to town is effing expensive - the 15 minute ride to Wimbledon where I work is about £9 per day. Public transport is rubbish. I cycle the 30 minutes to the nearest train station but on the occasions where my bike is out of action using local transport is only just feasible. For that reason almost everyone here has 2 cars. In London you don't even need a car, let alone 2.
Two of my friends live in Texas, in moderately large houses; they're justifiably proud of them, but all I see is a huge expanse of wasted space, a lawn to upkeep, and nothing (except neighbors) to walk to. Meanwhile, they look at my life and see a tiny cramped apartment where our baby has to sleep in our bedroom, and a commute that's twice as long as theirs standing shoulder-to-shoulder with people.
There's nothing wrong with the weather in Britain. It's got more character than the relentless bland sun of somewhere like California.
Here a screenshot of a comparison I did some time ago to motivate ourselves to leave london: http://imgur.com/7tdwCoD
House prices are horrible in London yes, but for transparency that's central London.
Prices get better (but still terrible) if you go further out. I just started looking at houses and for 500k you cant take a 40 minute tube journey twice a day and get a three bedroom house. With a yard.
The average room price at The Hilton is high as well. The solution isn't to sleep on the streets, it's to stay in a cheaper hotel.
Spend 17% of your life on that house, man.
...the OP sounds like he has a wife and child, so realistically a 2 bedroom is his minimum requirement, and that would probably get your close to that £500k figure.
Having lived in London for a year and hearing daily talks about delayed and cancelled (not to mention full) trains from coworkers, this sounds dreamily optimistic, as if coming from a real estate agent. London property market, central or not, is horrible.
Now live in Kent, 33 mins to London Bridge, 3 beds with a garden for almost half the cost of a flat in London...
[0] http://slatestarcodex.com/2014/07/30/meditations-on-moloch/
Sorry, it worked this way in mid 20th century. Personally, I didn't even _think_ of having a child before 32, and when it happened, it was still financially challenging.
In Geneva, where I live, the mediab age of the first childbirth is 35.
Fifty years ago it was common to have children around eighteen, thirty years ago it was common to have children around twenty five, and now it feels like thirty five is the normal.
This begs the question whether children will be possible before forty five within twenty years, and at that age bearing children becomes a major risk.
Women in large Chinese cities are already feeling unable to balance the pressure of a career and parenthood, opting to not have children at all, or having them very late into adulthood.
If London were to make housing affordable - a worthy goal - it would no longer be a good investment. The author seems to want both.
In other words, if you could afford the down payment, you wouldn't want to.
To be fair, the housing market has been propped up by successive UK governments for years, it's the only thing they have left and it's the only aspiration they try to goad the population into achieving.
Are you trying to say that the obsession with housing is some how trivial?
I would have thought the lack of land and houses probably prop up the housing market more than the government..
Additionally renters are almost treated like second class citizens, most rental contracts are short (12 months), real estate agent fees are exorbitant and clauses in rental contracts are designed specifically to protect and nurture the landlords investment, i.e. you cannot redecorate, put pictures up, own pets etc
the good thing is, that in the ensuing time, the city has become alot more vibrant, the youthful generation are now not as shackled with the past. Belfast feels fresh, and its a town with a great industrial and innovative past. Its about time!
20% down payment + stamp duty tax is roughly 130k. There is also a nonzero risk of the property bubble. Only Hong Kong is worse in terms of property purchasing power for average salary.
There are serval reasons for high prices:
- Market is heavy regulated.
- UK doesn't have any land and estate tax.
- Developers oligopoly is hoarding the land to keep the prices.
- Foreign investor are using properties as a insurance for rainy days.
- Interest rates are low and inflation is high, so people are pumping money into real estate market.
- Councils cannot build council housing any more.
- Bank of England schemes to buy.
It's an unfortunate situation. Extreme misallocation of capital which is bound to cause problems in the future. Money don't flow to companies and productive investments, hence there is no growth and the wages are stagnant. What is more, it makes it really expensive to start a company.
What's the solution? 1% estate tax with 80% discount if you pay taxes in UK (British Columbia passed a new property tax and it works well for them[1]). For an average person there would be no change - they would pay estate tax instead of council tax directly or indirectly. That would cause 25-30% price drop in London[2]. Why government won't do it? It would piss off a lot of powerful people which own real estate. Significant portion of the population has bought properties to rent and that price drop could make them go bankrupt. This is an unsolvable problem given the extreme divide in British society, since the Brexit vote. There won't be enough political will to pass the laws.
[1] - https://news.ycombinator.com/item?id=12160680 [2] - my estimation given other big cities salary to price ratio.
I don't know what do I pay then under the label of Council Tax. It is £800+ pa for a one-bedroom flat.
London, San Francisco etc. are expensive because of the wellknown opportunities there; are there really any places where you can have it both ways - inexpensive and filled with well-paid jobs?
Denver Austin Salt lake
Just to name a few
But I might be mistaken, so any comment would be appreciated.
The most interesting bit of NHR (from a tech expat working remotely PoV) is the tax free foreign income. Providing your clients are not in Portugal (so you don't brush up against CFC rules) there's nothing wrong with incorporating your consultancy in the UK or Malta and then paying yourself in dividends.
Jokes aside, I hope this problem finds a solution real soon, there are a whole bunch of hard working people that are farther and farther of living near where they work.
So... perhaps this is partially OT, but: according to a couple sources [1,2], income tax at £50k/year is just 17-18%, and National Insurance another 9%. This makes the total "tax bracket" around 27%. Even if the author means that 50k is his net salary, the same sources put the tax bracket at just 32% [3]. Why does the author say his tax bracket is around 40%? Are those sources unreliable? Are they missing some of the taxes?
[1]: http://www.netsalarycalculator.co.uk/50000-after-tax/
https://www.gov.uk/income-tax-rates/current-rates-and-allowa...
I can imagine to an outsider this seems like a bit of an unintuitive way to frame things :)
[1]: https://www.gov.uk/income-tax-rates/current-rates-and-allowa...
Now the dividend tax is 15% (in the best case scenario you can always try funnelling money through Man Island or other tax heaven). There is no land tax and estate tax.
These are inherently disconnected. Salary is related to the value of an employee's labour. In the contemporary US, the value of a software developer is high. In that same place, the value of unskilled or low-skilled labour is below the federal minimum wage in a lot of cases.
Living expenses are related to the costs of real estate, food, transportation, etc. Some of these things are highly labour intensive so their costs are related to the cost of labour. Things which are not labour intensive have their prices dominated by unrelated supply and demand issues. Real estate is not labour intensive. A single landlord can probably handle dozens of properties.
I can only suspect you don’t own property that you rent out. Tenants of just one flat, if demanding and complaining enough, can easily burden a landlord beyond any extent he considers acceptable. Any landlord whose portfolio extends into the dozens of properties will almost certainly have contracted all the actual work out to an agency with its own staff of multiple people.
That would be lovely, but I think salary is related to what the employee can get away with paying the employee, regardless of the "real" value. It's not a totally churlish example to point out how little good mothers get paid by the state for their value of their work.
There might be a similar reconsideration of how living expenses are reached.
Me & gf pay ~900 Euro for top-central ( Rosenthaler platz ) 2 rooms apartment and that's because we took it 3 years ago. Now, since we also talk about kids, we will probably have to pay 1.5k for 3 rooms located ~40 minutes from Mitte. Still not bad, but that's if we hurry up. Rent increase is around 10% per year, which does not match at all the salary increase rate.
Talking with friends, we are wondering how people such as bakery-owners, taxi-drivers, delivery / DHL employees work it out!
http://www.rightmove.co.uk/property-to-rent/find.html?search...
It will cut my rent in half which would allow me to travel a lot more and save up for a deposit as well - with an average price of £175k for a 1 bed flat in the city centre.
Birmingham Airport is just 10mins by train from the centre and costs like £2.50! Lots of airlines and destinations. Cheap flights within Europe with the budget airlines or even to Asia via hubs like Dubai with Emirates.
I'm self employed, work from home and I don't have a child yet - which makes it a lot easier to move.
Parts of London are lovely but like you said, unless you own a property or your household income is a few times the average UK salary - it doesn't make much financial sense to live there.
It is true that most of the banks expect you to have a backer, parents, recent inheritance etc. I had a mortgage advisor that was surprised that I didn't have such a situation, which shows the state of those buying in London right now.
Most of the people I know under 30 that have recently bought, had such a circumstance through inheritance, with large deposits going down. A 500k, 2 bedroom flat, with a 100k deposit can have a mortgage of £1000 a month. If you were to rent the same flat, you would most likely play £2000 a month.
The situation that a lot of people haven't talked about is single people attempting to buy, probably because it almost never happens anymore. Even at a modest £250k, this still will require a lot of cash in the bank and high salary, so single people are now stuck with renting until they meet someone.
To those who are wondering why you would buy central London at all, its definitely down to lifestyle. If you go out a lot in the city, getting a uber home is the difference between £15 and £50. The ability to walk to work for some people is also extremely important, as they have a feeling that when they do marry and have kids, they will move out to the suburbs and take a 40 minute train every day.
Folks prefer to live centrally to minimise their tube-time, although it's always been a mystery to me as to why virtually nobody lives in the City, apart from classic chickens and eggs arguments re: services (it's a graveyard at night and weekend).
There is no cheap within an hour of the city. There is no space within an hour of the city - just endless very expensive suburbia.
For example a season ticket from St Albans, a 25-30 minute or so train ride into the city costs £400+ a month
And they wonder why the traffic is shit on the westway.
the value of the property
increases over time
With the current unprecedented low interest rate levels it is hard to imagine, but there was a time that mortgage rates were above 10%. And there is no fundamental reason why they couldn't go back to those levels one day.
The government props up the market, because otherwise they'll get booted out by the millions who have staked their retirement on property, plus the taxpayer owns £ billions of equity via the help to buy scheme, so the govt takes a direct hit of prices go down.
Local homeowners prop it up by ensuring no new housing gets built near them.
On the monetary side, the bank of England props up the market (e.g. funding for lending scheme), because our economy couldn't handle a crash, our banks are loaded to the gills with mortgage debt, they don't have enough capital to withstand a crash.
I can only see three scenarios where prices fall materially:
a) big interest rate hike (I believe this caused the 89 crash)
b) massive increase in homebuilding (250k+ p/a, sustained)
c) mass emigration out of the UK.
I really doubt a) will happen, the BOE is loathe to raise rates as our household debt is 90% of GDP, twice what it was in 1990, our economy wouldn't handle it, our banks would be insolvent as they have <5% capital. Inflation would need to be double digits before the BOE's hand is forced.
b) also very unlikely. Homeowners make up the biggest voting block, a huge vested interest group. The green belt is a sacred cow. Every time the govt hints at liberalising the planning system, the mail+telegraph kick up a 'hands off our land' campaign.
c) maybe if brexit goes really badly, but we'd be in a true economic catastrophe if this happens. Probably wouldn't have a job with which to pay for cheaper housing.
I'd say it's inevitable, the only question is when.
Average salary is about $70k / year:
https://jobsquery.it/map;bounds=%7B%22south%22%3A49.82321169...
The fact that they feel forced into it worries me. Maybe the demand for London property is partly artificial. I think that a lot of people who live in very big cities just want to live there temporarily to earn cash and then get out and retire somewhere else.
Personally, I don't want to take a mortgage because I'm afraid that house prices will crash when the next financial crisis comes along.
Assuming you can get a mortgage in the first place, even just for a modest flat at £250k the banks would probably require you to have an income of £60-£70k, or a hefty deposit
Something we didn't expect was that it would be so difficult to meet other parents our age. Most of the time we were hanging out with people 10-20 years older than us, because those were the only other parents we could find. Not that that was a bad thing, though. We made some lovely friends!
The article is pretty accurate - a single earner providing for a family and renting in London will not find it easy if they're earning less than 90k (much over the average). On the plus side, once the children are school age, costs go down, and it becomes more possible to be a 2 income family again. You can think of it as 3 years of difficulty but then it'll get bearable again.
I think it's a loss when women leave the workforce after having a baby. (Or, that they have to)
We were paying £1300 per month to get 2 days per week for our kids at one point. As you can imagine, working just 2 days a week it's hard to make that back. And of course, you're paying out from income you've already been taxed on.
The ratio is pretty high - like 1:3 or something. Then they need to pay for the space. Our kids went to various nurseries over the years - some better than others. The best have kitchens where they cook locally sourced produce. There's a premium for that, but honestly it's not much cheaper for ones where the service / childcare standards aren't as high. Demand is high too. We were in an area with a really high birth rate (and relatively affluent families). It was a bit of a fight to even get spaces.
Similar problem in Toronto Canada... lots of people start out their careers in the city, then leave with their experience to outerlying areas with more realistic real estate (health care IT).
That all said: SF certainly ain't no London. I'd still pick London any day of the week.
Why's that? I've been working in London for a month and was looking into SF for next year. (So far I really like London.)
In the US it's only a few weeks, maybe a few months if at a really good company.
Perhaps of interest:
https://www.oecd.org/gender/data/length-of-maternity-leave-p...
The UK is one of the worst countries in Europe for this, though still substantially better than the US.
You basically pay for the privilege to live with other rich people so you don't have to deal with that. Naturally that's expensive.
Huh? Do you really get 'bad' public schools?
e.g supply and demand, assuming demand is linear with UK population size
All while living in various rent-controlled apartments in Montreal, where even people who are working modest jobs get to live happy lives.
So on 44999 You'd be paying 20% of (44999 - 11500) so 6700 on 44999 (effective rate been 14.8%).
In return you get free education up to (but not including) university age and universally free health care.
There's also national insurance at 12% of earnings over £680/month (money from this tax is used to fund state pensions and unemployment benefits).
My effective tax rate in San Francisco with a salary 4x what I was making in London is 36%.
Rent is comparable, with bigger appartments in San Francisco, buying is comparable. Quality food is more expensive in SF, other goods (electronics/clothing/etc.) is more expensive everywhere in Europe. Quality of life depends on wether you like the outdoors (SF), want a car (SF), or prefer city activities and/or dislike driving (London). London is also great if you like to travel, specially throughout Europe. The West Coast is particularly far from almost everywhere and there's a distinct lack of cheap airlines. From London you can have a $20 weekend getaway to, say, Prague. Admitedly, you do travel like cattle, but it is cheap.
In the US, besides what you're taxed, you must add all other fees that get added to almost anything you'll want to do, from healthcare to going out (the famous tipping), going through bank transfers (they're free throughout Europe, regulated markets, they charge you whatever the bank wants to in the US, only reliable way to transfer money here is to send cheques).
Overall, myself and my wife like it here, have made some great friends and don't really want to go (wouldn't cry for too long if we had to). We can save a ton of money because we have two incomes and weren't looking for the "2.5 kids house with garage for two cars and white picket fence", so we got a deal on both appartment ("small" for american standards, twice as big as our flat in London for roughly the same ammonut before the pound plummeted) and our car ("tiny" for american standards and manual transmission, it cost less than the anual insurance).
Every place is great to visit, every single place has things you'll complain about when you move there. Honestly, the thing that worries me is political, from the madman in power to the old lady that screamed at me and a bunch of other techies that "Trump won now so y'all will have to go back, I'm getting my city back." I didn't see the fallout from Brexit, but from my friends over there it is not as bad as here, but objectively bad regardless...