London - Rents in London have risen so sharply that the one group of young workers usually immune to worries about keeping a roof over their heads are starting to feel the pinch.
The average financial sector salary is about 30 percent higher than the average wage in Britain but it is still failing to keep pace with rent rises in the overcrowded capital, government wage statistics, salary research and rental data shows.
The trend casts a cloud over the capital's role as a global financial centre as young bankers join their fellow Londoners in weighing whether to pay ever-larger sums to live in the dynamic city centre or commute from outside, and may even push them into leaving for other industries or banking hubs overseas. According to government data tracking England's private rental market in 2014-15, the median monthly rent in London is now 1 400 pounds ($2 000), almost three times higher than in northeast England.
London residential rents have risen by an average 5.3 percent each year since 2011, data accurate to December 2015 from lettings agency Your Move & Reeds Rains shows. The median salary including bonuses for entry-level bankers, typically the most lucrative first role in financial services, went in the other direction during the same period, down 4.2 percent since 2011, according to research from Emolument, a website that benchmarks salaries across the industry.
“It's undoubtedly a problem for all young professionals in London,” said James Ferguson, a partner at financial consulting firm Deloitte. “Having affordable housing and bringing in a new breed of professionals to London is important. If we want London to thrive for professional and financial services we have to create housing.”
The challenge comes as Britain's membership in the European Union is under threat from a referendum due by the end of 2017 to opt out of the union, another uncertainty for young financial professionals looking for a welcoming place to live and work. It also has real consequences for the government. The financial services industry contributed 66 billion pounds in tax in 2013/2014, more than any other UK industry, data published by trade body CityUK showed.
“The lesson learned is: find a better job or move out of London,” said one 22-year-old financial services professional based in London's Whitechapel neighbourhood, who declined to be named in line with his firm's policy on talking to the media. “If you're a nurse trying to live in London, God knows what you'd do.”
Brain drain
The starting salary for a post with London's Metropolitan Police is 29 331 pounds, for a newly qualified teacher is 27 819 pounds and for a foundation year trainee doctor is 36 063 pounds, websites ran by the Met Police, Department of Education and National Health Service show. Banking, by contrast, is relatively well-paid: Emolument research shows an entry-level banker earned around 50 000 pounds, before taxes, in 2015.
But London rents are challenging to all pocketbooks. Research by lettings agency Stirling Ackroyd showed London tenants need to live at least 10km from London's Charles I statue in Charing Cross, traditionally considered the “centre” of the capital, in order to pay less than 1 000 pounds in monthly rent.
Just 24 out of 179 postcode districts within 10 miles of central London record average monthly rents of less than 1 000 pounds, with average monthly rents of 1 567 pounds in E14, the code close to the financial heartland of Canary Wharf.
Research conducted by KPMG alongside housing charity Shelter showed that more than half of all 20- to 34-year-olds could be living with their parents by 2040 and housing prices could quadruple in the next 20 years.
Some firms are doing something about it. Deloitte's Ferguson has started a scheme to reserve East London flats for the company's entry-level employees. Financial services and accounting firm KPMG, which employs over 7 000 people in London, has teamed up with Clydesdale and Yorkshire banks to help junior staff get access to preferential mortgage rates.
“We know from our staff engagement that getting a foot on the property ladder is one of the biggest personal finance challenges they face,” Simon Collins, UK Chairman of KPMG, told Reuters in an emailed statement.
Moving out
While KPMG and Deloitte are thinking up ways of giving their London employees a helping hand, some large banks have come up with another solution: moving jobs out of the city or even out of the country.
Investment banks have started moving back office and IT jobs to Poland and Ireland to cut wage bills bloated by what they consider to be expensive UK-based workers. Credit Suisse Chief Executive Tidjane Thiam last year estimated the Swiss-based bank could save 230 million Swiss francs a year if it moved almost 2 000 back-office positions out of London.
Earlier this month Morgan Stanley announced an initiative to cut up to $1 billion by 2017 by using technology and outsourcing jobs now in its New York headquarters and other higher cost cities like London to places like Mumbai and Budapest.
For financial sector workers with client-facing roles that must be based in London, moving to more affordable property in Bournemouth - where JPMorgan has based 4 000 tech staffers - or Birmingham, the site of HSBC's retail bank, is not an option, however.
Five banks contacted by Reuters said they had no plans to help young London-based staff bear the burden of housing costs. “We are in the top percentage of earners in the country and we can't afford a comfortable home in London,” said a 31-year-old mother of one, who works at one of Britain's biggest banks. Although she has no plans to leave her job, she will be moving her family out of the city. “If we can't afford it, who realistically can?”
BLOOMBERG