A report which rates London as the most expensive city to live or work in — even topping notoriously pricey spots like Hong Kong, New York and Tokyo — came as no surprise to anyone in the city. Average rent for a two bedroom property in Greater London now stands at £2,216, compared to £677 in the rest of Britain. Office rents are spiralling too, with one city office building being let out for £90 per square foot in April.
The report, published by Savills research, looks at the cost of renting residential and commercial space but doesn’t consider expenses like food or transport, and helps to explain London grabbing the top spot. Is London really the most expensive city to live in once other factors are taken into account, or do Londoners have it easy compared to residents of other major cities?
Rent is what is pushing London to the top of the Savills chart. Although its index is focused around commercial lets, private rents are taken into account too, as the higher they get the more pressure employers are under to increase salaries to compensate, or even to attract workers in the first place.
For businesses this creates a double-edged sword. As Yolande Barnes, director of world research at Savills says, being the most expensive city isn’t necessarily a desirable situation, but it reflects the desirability of London as a place to live and work.
However, this upward trend in rents could eventually impact on London’s competitiveness as a business base compared to other major cities. Barnes says: “As an occupier looking to rent in the city, it makes London less attractive compared with other cities employers might look at”.
But despite a 19.4% increase in residential rents since 2008, Londoners are still seeing lower rises than those living in other major cities. Rents in Sydney grew by over 33% in the same period, buoyed by investor speculation, demand for city centre apartments and strong performance in the economy as a whole.
Rio de Janeiro outstrips even Sydney, with a 116% rise in the cost of residential rents, driven by growing middle classes and employment, expanding credit markets and foreign investment.
Comparing the cost of shopping
Headline inflation rates rose by 1.9% last summer, and the cost of food was a major factor behind this rise. But even with this rise, Londoners don’t face the biggest bills for their grocery shopping. Comparing the cost of a basket of staple foods between the most expensive cities according to the Savills index, London doesn’t even make the top five, being crowded out by Sydney, Hong Kong and Tokyo.
Sydney’s expensive shopping basket is a reflection of steep prices throughout the country, due to transport costs, historically high prices and Australia’s generous wages.
The position of Tokyo and Shanghai in top positions reflects data from The Economist Intelligence Unit (EIU), where groceries tend to be most costly in big Asian cities.
Meanwhile London shoppers feeling the inflationary pinch can take advantage of the current supermarket price wars, which are seeing Aldi and Lidl aggressively competing on cost to draw customers away from mid-market stores.
But on one London doesn’t even make the top 10
You’re not reading that wrong. According to the EIU London only ranks at number 13 in the world’s most expensive cities to live in. These figures are based on a more general estimate of living costs, including transport, utilities and food in addition to rents, and are based on prices in US dollars.
In these figures London is outstripped by Singapore. High transport costs (whether for running a car or public transit), dependence on other countries for utilities and strong currency appreciation against the dollar all contribute to pushing it into first place.
However, this is not necessarily all that it seems. The Singaporean government argues that the EIU food basket is far from representative of the type of groceries most Singapore residents buy, including expensive luxuries like filet mignon and imported papers. This is borne out by the fact that according to resident-reported prices, a shopping basket of staples is £21.96, just under the cost in London.
One of the issues with the EIU data is that so much is covered that the particular price points which make Londoners wince on a daily basis get evened out. Take transport for instance. A five-mile Tube or bus trip in London is more expensive than in Hong Kong, New York or Paris — and this is by a factor of 13 between London and Hong Kong.
For most Londoners, travel by public transit isn’t an avoidable expense, unlike some of the factors in the EIU survey, such as domestic help or a bottle of wine.
London might not be the most expensive city for everything — spare a thought for residents of Sydney and Hong Kong — but the combination of rapidly rising rents and high transit costs, along with stagnating wages and inflation, certainly means that Londoners' concerns about the financial and social sustainability of living costs in the capital are far from unfounded.