How did we become Generation Rent?

An in-depth investigation by the District 34 data science team into the factors that caused a generation of Londoners to live on the financial edge. 

Andy (not his real name) cannot afford to be ill, though everything seems to be conspiring to get him down. Being young helps, and Andy maintains a strict diet and exercise regime, but still he feels the physical strain of The Grind on him.

Andy’s job regularly demands 100-hour work weeks. Sleep is hard to come by after the birth of his first child earlier this year. His wife has had to give up her career: keeping her job and hiring a full-time nanny did not make financial sense, especially after taking taxes into account.

The young family lives in a rented two-bedroom flat, with no amenities other than a tiny lift that barely fits one of them with the baby stroller. The three of them live on Andy’s paycheck, which comes in on the 1st of each month.

On the 2nd, half of it is transferred to their landlord, who bought the property in 1997 for a tenth of its current value.

The other half will have to last the three of them – paying for food, diapers, Tube fares, and so on – until the end of the month. Andy does not own a car, or the latest gadgets, and barely holidays. His wedding ring costs less than £1,000, and his personal iPhone is 5 years old.

Andy’s story sounds like the typical story of struggle for Londoners at the beginning of their careers. But Andy is not a typical Londoner: he is a senior lawyer at a top City firm earning £120,000 a year, which puts him in the top 4% of earners in London. Until recently, his wife had been a lawyer too.

Breakdown of Andy’s paycheck

Gross monthly salary£10,000
Income tax£3,363
National Insurance502
Council tax & utilities£250
Disposable income£3,085

With HMRC and his landlord both taking a third of his paycheck, Andy is struggling to make the numbers stack up despite his frugal lifestyle. Perhaps Andy’s biggest mistake was being born too late.

His generation – the millennials –  has been caught in the confluence of powerful macroeconomic forces that have swept across the developed world. The outcome: a generation stuck in a vicious rent trap.


The relocation of jobs and young people to cities

Globalisation and the transition to the Information Age saw the relocation of factory jobs away from the towns to other countries, while creating new, computer-powered jobs in cities. Cities in the UK (particularly London) saw rapid growth in jobs and inward migration of young people looking for work.


A map showing total number of jobs in each District in England. Jobs are concentrated in the cities, particularly London, where job growth has outpaced the rest of the UK for decades.


A heatmap of the proportion of the population aged 25 to 40 years old, showing the migration of young people from towns to the cities.

The result of decades of these forces at work was a distinct physical separation of young and old, between cities and towns. Bereft of jobs, young people, and inward investment, regional towns across the developed world became stomping grounds of the likes of Nigel Farage and Donald Trump.

The cities, as it turned out, would attract the attention of a different group.

A tsunami of cheap capital

By 2008, the stage had been set for the arrival of another powerful force.

In the aftermath of the financial crisis, a global wave of capital, ravenous for yield in an unfamiliar zero-interest rate environment, scoured markets around the world for investment opportunities.

Despite its aggressiveness, the new capital focused on rents rather than profits. Investors did not focus on making a lot of money – they focused on earning a steady stream of money for a long time, to replace what the central banks had taken away from the financial markets by setting interest rates to zero.

In short, investors were hunting for financial security, and they were happy to pay through the nose for assets that could give them stable returns for long periods.

The challenge, then, was to find safe assets with good-quality tenants to extract rent from for a long period of time. Residential property in the cities became an obvious choice.

The result: unprecedented house price inflation in global cities such as New York, London, Vancouver and Sydney.


A map of London showing median house prices from 2001 to 2017. Note the rapid inflation across the whole of London in the period post-2012.

A generation of Londoners, still saving up for their first home, could only watch on the sidelines as investors played real-life games of Monopoly. Then, robbed of the option of homeownership, they became sitting ducks for landlords, who raised rents while sitting on growing capital gains on their properties.

The Private Rented Sector (PRS) in London has doubled since 2008, with large investors continuing to pour billions of pounds into the residential market in search for long-term yields. In Wembley, PRS developer Quintain, backed by American fund Lone Star, is charging £2,280 a month to rent a 2-bed flat.


Average weekly rent, London and the Rest of England



Today, the average Londoner spends 60 percent of income on rent, trapping them in a vicious cycle: they cannot afford to buy a home because they pay too much rent, and they pay too much rent because they cannot afford to buy.


So, in conclusion: no, we did not become Generation Rent because of a craving for avocado toast.


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