Why the Growth Plan alone won’t solve London’s cost-of-living crisis

Senior Associate Director
PRD

Why the Growth Plan alone won’t solve London’s cost-of-living crisis

In this thought piece, Will Temple, Senior Associate Director at PRD, examines why economic growth alone will not resolve London’s cost-of-living crisis. Drawing on new analysis, he highlights the need to align housing and economic policy to improve living standards across the capital.

Londoners are spending more on rent than any other region and housing tenure is now the key determinant of financial resilience. Integrating London’s housing and economic strategies is therefore essential to tackle the cost-of-living crisis and boost living standards.

While the government’s first year in office focused on unlocking growth, the cost of living is back on the agenda. Consistently ranking as the main challenge facing Londoners, rising prices promise to be a key issue in May’s local elections.

Although growth has been targeted to boost incomes, new analysis shows that economic interventions alone are unlikely to shift the dial. Instead, the city’s housing and growth strategies need to work in lockstep to improve living standards.

Increasing incomes is important, but not sufficient

The most direct way of raising disposable incomes is to increase wages. This requires economic strategies to balance productivity gains with improving access to good jobs.

This approach is enshrined in the new London Growth Plan which – alongside a commitment to raise productivity growth to 2% per year – seeks to raise the real household weekly income (after housing costs) of the lowest earning 20% of Londoners by £50 per week.

It’s an important target. Around a quarter of Londoners live in poverty after housing costs and London is the most unequal region in the UK in terms of household incomes. But with the JRF predicting that the next five years will be the bleakest on record for living standards, will this ambition be sufficient?

To help answer this question, PRD has developed a new cost of living calculator for London. The calculator enables users to model the financial resilience of households – showing how net monthly disposable income varies across London once all essential costs have been considered.

Our modelling shows that even if the £50 per week uplift targeted by the Growth Plan is delivered, the bottom 20% of households would still be unable to afford a decent standard of living due to the rising utility, food, and travel costs.

Housing tenure is the primary predictor of financial resilience

The findings are clear: unless housing costs are reduced, there is a risk that Londoners’ living standards will continue to stagnate.

Research from the ONS showed that in 2024, Londoners were spending 42% of their household income on rent – by far the highest of any region nationally. However, this is a pre-tax metric. Our analysis shows that once taxes are paid, renting the average one-bedroom flat in LB Islington now consumes well over half of the average resident’s disposable income.

The challenge is now so acute that even middle-earning Londoners are also struggling to make ends meet. Our analysis shows that two key workers living with their toddler would now only be able to afford to rent privately in four out of the city’s 33 boroughs.

Therefore, the announcement of a Key Worker Living Rent (KWLR) is a welcome recognition of the importance of broadening access to affordable tenures for middle-income Londoners. Critically, KWLR links affordability to 40% net earnings, rather than a discount on market rent.

Integrating London’s housing and economic strategies to make progress on the cost of living

Lasting change requires concerted London-wide action that simultaneously boosts incomes through growth and tackles spiralling essential costs by driving down the price of housing.

London is uniquely placed to build on these positive policy announcements with new cross-sector mission boards to deliver the ambitions of the Growth Plan and increase the supply of new homes.

By anchoring these missions and policy announcements in their combined ability to raise living standards, local leaders can take steps to maximise household incomes while tackling the drivers of high costs that are driving so many Londoners into hardship.

Will Temple

Senior Associate Director
PRD

Why the Growth Plan alone won’t solve London’s cost-of-living crisis

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