Summary
Since 2007, the number of people commuting from outside London into London for work has increased 20.9%. In the same period, London house prices have increased by 79.2% or by circa £212,000 per house on average. The biggest proportion of this growth has been in central London workers. From 2015-2017 there was a 16.8% increase in people working in central London who travel in from outside the city (see below for regional breakdown). Over that same period the average price of a house in London rose by 18.1%. Most recently, the number working in outer London has decreased- down 10.1% from 2017 to 2018. Simultaneously the number of outside London commuters working in inner London has increased by 21.6%. Some of the underlying factors driving these trends may include costs of transportation, work-life balance and government policy.
What does the graph show?
The graph displays data about where people live versus where they work in London (split into central, inner, outer). Inner London comprises the areas of City of London, Camden, Haringey, Hackney, Hammersmith and Fulham, Islington, Kensington and Chelsea, Lambeth, Lewisham, Newham, Southwark, Tower Hamlets, Wandsworth and Westminster. Outer London includes all London boroughs less those listed as inner.
Central London (also deducted from inner), per the GLA’s London Plan, comprises a ‘Central Activities Zone’. This includes the City of London, most of Westminster and inner sections of Camden, Islington, Hackney, Tower Hamlets, Southwark, Lambeth, Kensington and Chelsea and Wandsworth.
The chart gives the sum of people commuting from English regions nearest London; the East and West Midlands, South East, South West and East of England regions. It is scaled in thousands (on the left hand y-axis), numbers are rounded to the nearest thousand and are not seasonally adjusted. The chart also displays average house price in London (taken in January of each year). This is shown by the black dashed line which is measured on the right hand axis.
The in-set graph tracks UK employment levels and is measured as a percentage (taken from q1 of each year). All data is from the period 2007-2018 and is taken from the Office of National Statistics via London Data Store.
Why is the chart interesting?
Since 2010 there has been a 33.6% increase in the number of people working in central London who commute from outside London and a 71.5% increase in London average house price. With London housing being the most expensive in the country, commuting from outside the capital has grown increasingly attractive and/or necessary for many more workers. In 2016 alone, the average affordability ratio (house price divided by average worker annual earnings) of homes in England increased from 7.37 to 7.59. London had the least affordable housing, with a ratio of 11.98, meaning workers required nearly 12 times their annual salary to purchase a home. Although some of the highest wages are concentrated in London, the high affordability ratio reflects the higher median price paid for homes in the capital. Private rentals in London were also the most expensive across all property types.
However, this trend of increasing prices has already begun to taper. KPMG predicts a 6% decrease in UK house prices if a no-deal Brexit occurs. Echoing this, the Office of Budget Responsibility estimated a potential 10% fall in house prices by the middle of 2021 should no-deal take place. Year-on-year growth in UK average house prices has indeed slowed down, most recently only increasing by 0.35%. According to Halifax, Q3 2019 growth in house prices was the slowest in over six years and was preceded by a 0.4% decline during the previous quarter. However, some have blamed this on the result of a natural slow down and correction to the housing-market, rather than Brexit.
Transaction volume is another indicator of the state of the housing market. By this measure, Brexit has not had much of an impact on the housing market as transaction volume in August 2019 (99,980) was comparable to pre-Brexit monthly volumes. In Which? Magazine, Stewart Basely, executive chairman of the Home Builders Federation, shared this sentiment and discussed how ‘the new build market has remained relatively strong.’.
For workers choosing to commute into London, transportation fees have increased above inflation. According to the Campaign for Better Transport, annual season ticket fares have increased on many popular rail routes into London. For example, the cost of an annual season ticket from Harlow Town to London increased to £3738, up 8.9% from 2016. These costs mean that some commuters can spend up to a fifth of their annual salary on transportation.
Since the deregulation of the bus industry in the 1980s (excluding London), many commuters complain of higher fares and worse service. A single bus ticket in London costs £1.50, while outside the capital, a single fare can reach as high as £6. Quoted in The Guardian, Andy Burnham, mayor of Greater Manchester, described bus services as ‘fragmented, incomplete, overpriced, fragile’ and ‘fundamentally not run in the public interest.’. Furthermore, in certain areas such as Kent, single fare and return tickets are not offered. Riders are instead forced to buy a day-pass at the steeper price of £4.30. According to the Department for Transport statistics, the number of passenger journeys in England (outside of London) have decreased by 4.2%. In London, that same number has increased by 23.5%. During 2017-18 central and local government gave private bus companies in England £2.18bn in subsidies to provide socially necessary services that were commercially unviable. In places where local authorities retained municipal bus services, fares were much lower. This was highlighted at multiple party conferences this year, clearly recognizing its electoral importance to some groups. Currently, almost half of all bus routes in England already receive some form of subsidy from local councils.
In a 2017 survey done by VitalityHealth, the University of Cambridge, RAND Europe and Mercer, it was reported that those who commuted for less than half an hour each day gained an additional seven days’ worth of productive time per annum compared to people whose commute was longer than an hour. In addition, workers with long commutes were 37% more likely to experience financial worries and 12% more likely to experience work-related stress.
As a net contributor to the Exchequer, investing in London transportation may yield positive externalities across the UK, as it can create new demand for goods and services along the supply chain. Further investment in public transportation, particularly in London, has been a point of focus for the last several years. It is reasoned that better infrastructure will help boost economic growth by lowering costs to businesses and consumers through reduced congestion and shorter commute times. In cities such as London, where there is a concentration of specialised talent, improved infrastructure can lead to lower transportation costs and also boost productivity through more efficient allocation of resources.
Brexit has also been a factor in where people choose to live because of the uncertainty surrounding some major firms’ desire or ability to remain in the UK. One way of measuring this loss has been by analysing growth in surrounding countries. For example, Paris prime-office space vacancies are down to 1.7%. The price of Parisian high-end apartments have increased by 5% since the Brexit referendum. Similarly, in Frankfurt more than 45 financial institutions such as Goldman Sachs and J.P Morgan have set up new offices or expanded existing ones.
Perhaps the increase in outside London workers commuting into the capital is reflective of the growth in flexible working. Workers who do not require five days’ a week in the office may well be more amenable to a longer commute on the days they do. A historic focus of work culture is ‘presenteeism’- the idea that employees must show up to their offices in person and work extra hours to get ahead. A survey by Deloitte with Timewise revealed that 30% of workers currently working flexible hours believe they have less status and another 25% believe they are given fewer opportunities compared to colleagues with conventional hours. Intuitively, many workers afforded flexible work hours are likely to be women with children, who may be perceiving discrimination for other more widely evidenced gender-based reasons.
There has been undoubtable growth in the number of workers offered flexible work arrangements as companies look to both accommodate their workers’ care responsibilities and save office costs. Indeed, in 2017, 43% of all UK workers had some form of work flexibility compared to 2014 where only 30% did. Offering work flexibility can be a strength of smaller businesses competing with large global brands for talent. In San Francisco, many start-ups increasingly allow employees to work 100% remotely. Work flexibility is especially valuable to parents and care-givers. According to the ONS, the percentage of working mothers has exceeded that of women without dependent children since 2010. With changes in the structure of the labour market, the traditional 40 hour work week has increasingly fallen out of favour. Employers may move more towards flexible arrangements recognising the changing perceptions of caregiver roles and employee values.
Within the UK, London’s workforce has the highest proportion of service jobs, while other regions such as the East Midlands have higher proportions of production jobs. In regions where there is a higher proportion of production jobs- such as the North East or Yorkshire and the Humber, average wages were also the lowest per the ONS Annual Survey of Hours and Earnings. However, in these areas average house prices (measured in August 2019) were also lower at around £134,736 and £165,767 respectively. Despite London’s high cost of living, the high-paying jobs it can offer to workers and recent graduates make it appealing overall. Indeed, the largest population moving into London is the 21-30 age group, contributing to London becoming the sixth youngest population in the UK.