Read more: How to fix the housing crisis
Surprisingly few analyses have looked at the impact of London's housing crisis from an employer’s point of view. I spend a lot of time talking to employers small and large, and a growing concern is the inexorable rise in the cost of living in the capital, and what this means for the ability to attract and keep staff.
London's dominance is partly based on its resources, which for some businesses are physical and for others are intangible. For the majority of office-based businesses, their only resource and key asset is their employees. So if a city cannot provide or sustain workers, then its long-term outlook is undoubtedly one of decline.
London has succeeded over other British and European cities because it has managed to suck in bright young things from the rest of the country and the world. This salmon-like migration of graduates appears unstoppable, but are we reaching a moment when the cost of living in London for both skilled and unskilled workers becomes a challenge to employers?
Savills is projecting that London house prices will grow by 15 per cent over the next five years and rents by 22 per cent. While these rates of growth are slower than in recent years, they still represent a major increase in the cost of housing. This in turn means that employers will likely respond in one of three ways to ensure that they keep their current staff and remain competitive in the job market.
The first and simplest solution is to raise salaries and wages. However, this may be simply unaffordable for employers. Even the most cursory analysis of productivity in London shows that output per employee has barely grown over the last five years. Furthermore, wages and salaries are not the only costs that have been growing faster than output. For example, in Westminster over the last ten years, only three business sectors have seen a faster growth in their output than in their rent bill.
Another increasingly popular trend is to move jobs out of London to cheaper locations such as Birmingham and Manchester. This is by no means a new idea, but one that ebbs and flows depending on the cost of employment and office space in central London. Recent high-profile moves have included Deutsche Bank and HSBC to Birmingham, and Freshfields to Manchester. What differentiates this current trend from that of the 1990s is that many of these large companies are moving front of house jobs, not just the back office positions. The attractions of a regional move are significant, with an average saving in property and staff costs per worker of around £20,000 a year. However, the turbulence can be considerable (as can the redundancy costs), and more businesses are still being drawn to London than are leaving.
One solution is gaining traction among London’s largest employers: helping their staff to deal with housing costs. Solutions range from Starbucks offering their workers loans for rental deposits, through to Deloitte negotiating preferential deals with housing association for its graduates, and large companies renting units from private developers for their staff. Some of these initiatives bring to mind model villages like Saltaire or Bournville, built in the 19th century by industrialists to house factory workers.
Worker housing, of course, is by no means just a story of the Victorian era, and corporate housing is a reasonably well-established asset class in some parts of the world. Given the pressing need for housing in London, the relative inflexibility of salaries, and the increasing hunger among investors for long-term secure income streams, we may be about to see a boom in corporate housing in and around the capital. After all, it would just be a posher version of custom-built student accommodation, which has been one of the darlings of the property investment world over the last decade.
Surprisingly few analyses have looked at the impact of London's housing crisis from an employer’s point of view. I spend a lot of time talking to employers small and large, and a growing concern is the inexorable rise in the cost of living in the capital, and what this means for the ability to attract and keep staff.
London's dominance is partly based on its resources, which for some businesses are physical and for others are intangible. For the majority of office-based businesses, their only resource and key asset is their employees. So if a city cannot provide or sustain workers, then its long-term outlook is undoubtedly one of decline.
London has succeeded over other British and European cities because it has managed to suck in bright young things from the rest of the country and the world. This salmon-like migration of graduates appears unstoppable, but are we reaching a moment when the cost of living in London for both skilled and unskilled workers becomes a challenge to employers?
Savills is projecting that London house prices will grow by 15 per cent over the next five years and rents by 22 per cent. While these rates of growth are slower than in recent years, they still represent a major increase in the cost of housing. This in turn means that employers will likely respond in one of three ways to ensure that they keep their current staff and remain competitive in the job market.
The first and simplest solution is to raise salaries and wages. However, this may be simply unaffordable for employers. Even the most cursory analysis of productivity in London shows that output per employee has barely grown over the last five years. Furthermore, wages and salaries are not the only costs that have been growing faster than output. For example, in Westminster over the last ten years, only three business sectors have seen a faster growth in their output than in their rent bill.
Another increasingly popular trend is to move jobs out of London to cheaper locations such as Birmingham and Manchester. This is by no means a new idea, but one that ebbs and flows depending on the cost of employment and office space in central London. Recent high-profile moves have included Deutsche Bank and HSBC to Birmingham, and Freshfields to Manchester. What differentiates this current trend from that of the 1990s is that many of these large companies are moving front of house jobs, not just the back office positions. The attractions of a regional move are significant, with an average saving in property and staff costs per worker of around £20,000 a year. However, the turbulence can be considerable (as can the redundancy costs), and more businesses are still being drawn to London than are leaving.
One solution is gaining traction among London’s largest employers: helping their staff to deal with housing costs. Solutions range from Starbucks offering their workers loans for rental deposits, through to Deloitte negotiating preferential deals with housing association for its graduates, and large companies renting units from private developers for their staff. Some of these initiatives bring to mind model villages like Saltaire or Bournville, built in the 19th century by industrialists to house factory workers.
Worker housing, of course, is by no means just a story of the Victorian era, and corporate housing is a reasonably well-established asset class in some parts of the world. Given the pressing need for housing in London, the relative inflexibility of salaries, and the increasing hunger among investors for long-term secure income streams, we may be about to see a boom in corporate housing in and around the capital. After all, it would just be a posher version of custom-built student accommodation, which has been one of the darlings of the property investment world over the last decade.
