London's growing inequality

Polly Barker | 09 Dec 2014 | Comments

London’s growing inequality, do housing and infrastructure offer a solution?

London is the economic powerhouse of the UK; home to a third of the entire country’s wealth it is a ‘playground for the super-rich’. However in parallel it is also home to some of the highest poverty rates in the country, with a reported 2.1 million people living in poverty, a rate significantly higher than other western cities. London has now become a segregated city, where the poorest members of society, and also many of the middle classes, are being pushed into the outer suburbs. Inner London is becoming exclusive to the wealthiest and inequality is no longer bound to pockets in the inner city.

So why does it have to change?

There is a plethora of evidence linking inequality to limited social mobility, health problems and lower levels of happiness but there is also strong evidence to suggest that unequal societies have more unstable economies. Research by the economist Paul Krugman suggests there is a strong link between equality and financial crises, as both the 1929 and 2008 economic crashes coincided with high levels of inequality in society. Inequality has also proven to lead to severe social disturbances and there is evidence that suggests inequality was one of the driving forces that led to the London riots in 2009. Arguably, it is no coincidence that hot spots of the riots, such as Tottenham, Brixton, and Clapham, are home to some of the largest gaps between the rich and poor.

How do we change?

A vicious circle has now been formed between inequality and housing, the average house price in London has tipped over £500,000 and rental prices are double that of the rest of the UK. A recent report by the New Economics Foundation shows a strong correlation between rising income inequality and house prices since the 1970s, which is shown to be caused by various factors including richer people ‘consuming’ more housing, the process of gentrification with richer ‘buying in’ to various locations and pushing others out, and NIMBYs* preparing to pay for restricting housing supply near to them. These processes ultimately lead to a constraint in supply, pushing prices up further – the housing supply in London therefore must be tackled. London has not been building even half the required 49,000 units a year since the 1940’s and although the housing market is complex and cannot simply be resolved with land release, a starting point would be for both local and national governments to reassess the greenbelt boundaries, which is not only out of date in the current economic climate – it constricts supply. Land should be targeted at lower value suburban areas, so there will be a need for the public sector to play its part in delivery, which can allow development to come forward in riskier local markets and allow long term investment for true affordable homes.

Further to the release of land, there needs to be a radical change in policy when constructing new homes. Affordable housing is often no longer considered truly affordable. An ‘affordable home’ can now mean up to 80% of the market rent, which is still a long reach for even middle earners in London. Then there is the viability testing process, introduced by the coalition, which is being used by developers to bypass the need to provide affordable housing at all, forcing people out of their homes and often into private rented accommodation away from the centre. This cultural shift into ‘generation rent’ must therefore be recognised and met with support for long term rentals, which could offer much needed stability and prevent people from being pushed into outer areas with the poorest infrastructure, and most disconnected from the economic and social resources they require.

Sir Peter Hendy of Transport for London recently said that if ‘people find accessing work impossible, you risk social unrest’. As people are pushed further from the core of the city, they are pushed further from centre of culture, facilities and jobs so if suitable infrastructure is not in place, you increase the inequality levels. Introducing new transport infrastructure of course offers a mechanism to break the barriers through better access, however radial transport infrastructure , such as the likes of Crossrail, can simply exacerbate the problems, and can be viewed upon to be a transport infrastructure that is expanding the pricy centre for the inside out. Future infrastructure improvements will need to take into account the changing structure of London, we require better orbital links between the suburbs and outer London centres, so the introduction of an infrastructure such as an orbital rail could both assist in the population growth and attract jobs.


The gap between rich and poor is growing at rapid rates and this must change to prevent future economic and social challenges, not only London but the wider UK economy. Although this post barely even skims the surface on the issues, it is clear that both housing and infrastructure have massive capacity to close the divide – however, a change in policy and approach must first be adopted to do so.

*NIMBY: Not in my back yard