• London’s population continues to grow, with the impact of Covid-19 and Brexit not as strong as expected. Office-based sectors are forecast for the strongest GVA growth, drawing in demand from working-age employees looking to live in well-connected locations

• London households are growing in size due to a shortage of affordably priced homes. London needs more affordably priced homes to make sure young people do not leave for less expensive parts of the UK

• London’s student and graduate market is a growing part of the urban population. Appropriately priced rental products such as BTR and co-living can offer the convenience of all-inclusive bills to this growing pool of demand.

The capital’s population is still expected to increase

London’s population was estimated at over 9 million for the first time in 2020 by the ONS. The region has enjoyed the strongest population growth over the past decade and continues to top regional forecasts for future growth. Covid-19 and Brexit caused a temporary blip in population figures but have since returned to growth as young people flock back to the city.

The working-age population is expected to grow by 8.7% between 2022 and 2032, which will increase housing demand requirements from young workers. Employment sectors such as Finance and Insurance, Science and Tech, and Information and Communication are forecast to bring the most money into the capital, with the top 10 sectors contributing £99bn over the next decade. The office-based employees working within these growth sectors will continue to drive demand for city-centre living in well-connected locations.

London households are increasingly sharing or moving elsewhere

But London homes are getting more crowded. The average London household size in 2021 was 2.57, an increase of 2.7% from the 2011 Census.

Household size was projected to fall in the capital, perhaps to reflect the trend toward single-person living. But the opposite has happened, as increasing rents and deposit requirements prevent Londoners from buying or renting their own place. The undersupply of affordable new homes has meant more people are living with their parents in multigenerational households for longer or splitting costs in house-shares. This has limited new households forming, meaning the targets set for housing need are likely underestimating how many new homes are actually needed.

Whilst we did see people leave London and the population dip during the pandemic, this isn’t necessarily a new trend but one driven by affordability. From at least 2012, more people have been moving out of London to other parts of the UK, than moving in. This net outflow of people stabilized at around 100,000 per year between mid-2017 and mid-2020. Data tells us this trend is more common with older age groups looking to up-size, which isn’t surprising given the affordability constraints in the capital.

While the first lockdown caused a temporary rise in young people leaving the capital, many returned the following summer once hospitality and tourism sectors recovered. The latest data suggests that by mid-2021 the net migration of people leaving London had started to improve. And so delivering enough homes at an affordable level to buy or rent will be vital to allow these young workers to live and work in the city in the face of the rising cost of living.

Students and graduates add to demand in the capital

Another key question has been the extent to which London has been impacted by Brexit and internationals leaving the city. ONS data shows that although there has been a decrease in migration from EU countries, there has been an increase in non-EU migrants. This is also reflected in student migration trends.

Overseas student numbers have grown by 24% since 2014/15, with non-EU students growing fastest. Even between 2020 and 2021 there was a 17% increase in non-UK UCAS applicants to London universities. International students are more likely to opt for purpose-built rental or student accommodation over HMOs, driving demand for this product. Many continue to live and work in London post-graduation.

Domestic UK graduates continue to flock to London over other UK cities after graduation: 54% of graduates surveyed 15 months after graduating in 2019 were still living in the capital, while a further 94,000 graduates relocated to London to secure employment from other parts of the UK. This brings in over 103,000 net newly graduated young professionals each year, contributing to additional pressure to housing demand. Whilst this age group will earn more by locating to the capital – with an average starting London salary of £23,600 vs £20,500 for graduates outside of London – the difference is not enough to account for the disproportionate expense of living in the capital.

Young people are also more likely to be squeezed by rising energy costs that are often payable in addition to rent on their housing. Our analysis shows new builds, including BTR homes, can save an average of 55% in energy bills over second hand homes, even with the new energy price guarantee.

This all points to demand remaining steady in London, particularly from younger households. An increase in graduates and international students will outweigh the migration out of London of some EU nationals and those UK owner occupiers seeking more affordable homes.

But ultimately, this means that demand is still going to be higher than the supply of new homes being delivered.

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