By Andy Bruce and Sara Ledwith
LONDON (Reuters) - Last weekend, London couple Vicki Clayton and James Renhard left behind cramped bedrooms that smelt of smoke, housemates who stole their food and a landlord who kept his deposit, and moved into a rented flat of their own.
Buying a home is not an option.
"I don't know where the extra money to put away for a deposit is going to come from," said Renhard, 34, a law graduate who works as a website editor. "Aside from a mystery benefactor or a lottery win."
The couple is a relatively wealthy example of London's Generation Rent: people shut out of the city's housing market by high prices. The problem has become a hot issue in national elections due next month.
To buy an average house in London today, you need to earn over 100,000 pounds ($150,000) a year, according to the National Housing Federation (NHF), a trade body for affordable housing providers. That's more than three times the average salary in the capital, and more than Clayton and Renhard earn combined.
High prices are reshaping the housing market. By last year, one-third of all London households rented - double the level of a decade ago, according to the Office for National Statistics.
That's a reversal of a century-long trend, according to Toby Lloyd, head of policy at Shelter, a homelessness charity. Since 1918, home ownership grew, becoming deeply ingrained in the British psyche. But in 2002, the ownership rate started to decline. According to one survey, more than half Britain's young people now say they are not even saving to buy a home.
The main reason for high house prices is simple: London, like Britain as a whole, is not building enough homes. At the current rate - 17,547 new homes a year - the capital could face a shortfall of more than 700,000 homes by 2031, according to the NHF.
Even renting isn't cheap, eating up about 53 percent of average London incomes, according to the NHF. That's a bigger share than anywhere in the United States except the New York borough of Brooklyn, where renters pay 60 percent, figures from real estate agency Zillow show.
Business leaders say sky-high prices are making it hard to attract workers. A survey last year for London First, a business lobby, found that two out of five employees would consider moving out to find cheaper housing. London's housing supply and costs are "a significant risk to the capital's economic growth," said three-quarters of the decision-makers questioned for the survey.
By itself, lower home-ownership is not necessarily a bad thing. Germany has an ownership rate of just 53 percent, but boasts a more mobile workforce and lower rents. Rising house prices also boost government revenues and make people feel rich, which can encourage them to spend. London itself is booming, its skyline evolving "like an accelerated ... nature film about the return of Spring to the Canadian tundra," in the words of Mayor Boris Johnson.
But as house prices rise out of reach of more and more people, the downsides are becoming obvious.
"We're turning the clock back to the 19th century, which has huge implications for the politics and society of our country," said Shelter's Lloyd. "A whole generation is being priced out and losing out as a result of a systemic failure to build enough homes."
LIVING IN A BEDROOM?
The average London house costs more than 10 times average earnings, up from around four times in 1993, according to the Institute for Fiscal Studies. Real house prices - but not real incomes – have grown faster in the UK over the last 40 years than in any country in the Organisation for Economic Cooperation and Development (OECD), a 2014 study in Economic Journal showed.
Countless obstacles, including a clunky and short-sighted planning process and a lack of skilled construction workers, hurt. Low interest rates have made borrowing more affordable, but also sent yield-hungry investors piling into property. Many new developments are targeted at investors, leaving few homes for people on average pay.
Clayton and Renhard moved to London last year after Renhard found work. Clayton, 27, has picked up plenty of freelance work in media. But on their current pay, they simply can't live long enough to save the deposit for a London home. Up to 60 percent of their combined salaries goes on housing.
Many of the couple's friends at home in the West Midlands earn less but are buying homes. "My friends say to me, ‘Why do you live in a bedroom?'" Clayton said.
Important workers like nurses - who on average earn 25-30,000 pounds a year – struggle even to rent. More than 60 percent of Metropolitan Police officers - starting annual salary 29,000-43,000 pounds – now live outside London, according to June 2014 data.
That's up from just over 50 percent in 2013. In a long-drawn out crisis, getting police, fire brigade and ambulance workers into place could be a problem, the Chamber of Commerce said in a report last year.
The Mayor's Office for Policing and Crime said it is committed to recruiting more police officers who live in London. The city has introduced a policy of only recruiting police who've lived in the capital for three of the previous six years. A spokeswoman said this would make the force more resilient when events called for rapid deployment. The authorities have also funded more affordable homes.
At the same time, to raise money to hire police, the authority has sold off more than 125 million pounds worth of police real estate, some of it to be developed into prime housing.
Clayton and Renhard are happy to have found their own place, even if they are renting. They started out in one room of a shared house in leafy south-east London. But the landlord decided to sell and gave them a month to move. Now they are fighting in court to retrieve a 600 pound deposit.
Others have been less lucky. In June 2013, Daisy-May Hudson, now 24, was evicted with her working mother and 14-year-old sister from the privately rented house on the edge of London where they had lived for 13 years. Prices had exploded and the family could not afford to stay. They declared themselves homeless, and for months lived in a "halfway house" in Essex.
Hudson now produces films for Vice, an online news channel. One documentary focused on a group of single mothers protesting forced evictions. Hudson attended a London property fair where, she said, "you could win champagne on almost every stall." When a group of protesters tried to enter the building, she said the delegates were bemused. The film shows police beating the protesters back with batons. "I think a lot of people were very scared," Hudson said.
The main parties have pledged to build more homes, although how they will fund them isn't clear. The Conservative Party also wants to help more people buy their homes, but economists say stoking demand alone would not help. [ID:nL4N0XE4NV]
Clayton and Renhard are not hopeful. Home ownership is "such an alien thing to me now," said Renhard. Saving is "almost like a waste of time."
(Edited by Simon Robinson)