London, a cultural and economic powerhouse, is infamous for its sky-high living costs. Rising expenses in both commercial and residential markets, driven by exorbitant business rates, steep rents, and the monopolisation of property ownership, play significant roles. Let's explore the underlying reasons, focusing on how commercial sector dynamics influence the residential market and overall cost of living.
The Interplay Between Business Rates, Commercial Rents, and Residential Costs
High business rates and ever-increasing commercial rents directly drive London's unaffordable lifestyle. Business rates are pegged to estimated rental values, creating a vicious cycle in which rising rents lead to higher rates, and businesses must hike service costs to stay afloat. It's a relentless squeeze.
According to the Federation of Small Businesses (FSB), many small enterprises list business rates as their second-biggest financial burden, just behind rent. Imagine this: in 2020, the average business rates bill for a small London business was a staggering £15,000 annually, with prime locations like the West End surpassing £50,000. Commercial rents have soared by an average of 4.5% annually over the past decade (British Property Federation). Post-COVID, rents are projected to spike dramatically as the economy rebounds.
Businesses in London face a brutal reality—around 20% crumble within their first year, 50% by year five, and 70% by year ten. The lethal combination of ever-increasing rents, oppressive business rates, and limited access to affordable funding crushes established businesses and many startups before they can take off. Established businesses tick like a timebomb towards the end of their fixed-rate leases, knowing they will likely be unable to renew and continue trading.
Monopolisation of Ownership
Large corporations and investment firms are tightening their grip on London's commercial properties. This trend bleeds into the residential market, where a few powerful entities control vast swathes of housing. In 2021, the Evening Standard revealed that foreign investors owned nearly 60% of London's prime commercial properties, a stranglehold that drives up rents and slashes affordable housing availability.
The Residential Market: Rising Rents and Property Prices
London's residential property market is a pressure cooker of high demand and limited supply, worsened by property ownership monopolisation. The Office for National Statistics (ONS) reported that in 2021, the average rent in London was an eye-watering £1,600 per month, dwarfing the national average of £700. The average house price in London soared to £500,000, more than double the national average. It's a housing market on steroids.
Planning System Changes and Impact on High Streets
The London Plan 2021 sets out a vision for sustainable, inclusive growth. But let's be honest: short-term fixes like repurposing buildings and revitalising high streets are as effective as a chocolate teapot. They look good but melt when you try to make tea. High rents and business rates are the true kingmakers in the success or failure of new businesses.
Government Strategy to Regenerate High Streets
The "Build Back Better High Streets" plan focuses on five key areas:
Yet, these measures skirt around the fundamental problem of sustainability. High taxes and rents shackle every business. Unless this is addressed, the cycle of failure continues unabated.
Potential Solutions: Business and Residential Property Ownership
Allowing small businesses the right to purchase their premises would resolve the problem. Similarly, if families could afford to buy homes, it would improve their overall financial viability, increase their disposable income, and lift them out of poverty.
For businesses, ownership would enable confident investment in operations, potentially lowering consumer costs. For residents, owning property would provide financial security and protect against rental market volatility. However, more than simply offering the right to buy is required. Like the "Right to Buy" scheme, this measure will fail unless the ability to own is ringfenced for future generations. We ensure that ownership is not just a one-time opportunity but an ongoing possibility for successive generations.
Affordable rates and costs must be maintained to ensure long-term accessibility. This is essential for the initial wave of owners and their successors, ensuring that the property remains within reach for small businesses over time. We can create a sustainable and stable market environment by ringfencing ownership rights.
This is likely where the "right to buy" went wrong; the ownership of the home overall fell into the hands of investors or exceeded the pockets of those social housing was initially intended to serve.
While this approach is detrimental to the relentless pursuit of profit that drives large corporations and property investors, it is a friend of community stability and sustainability. Affordable ownership fosters long-term investment in local areas, promotes diversity in business operations, and helps maintain neighbourhoods' unique character.
By ensuring that future generations have the same opportunities to own property at reasonable costs, we can combat the monopolisation of property ownership. This, in turn, helps to keep communities vibrant and economically resilient. It also prevents the displacement of small businesses and residents, promoting a more inclusive and stable economic environment.
Ensuring ongoing affordable ownership across generations may challenge the profit-driven motives of large property owners and investors, but it is essential for the health and sustainability of local communities. It nurtures a stable environment where businesses can thrive and residents can live without the fear of displacement, creating a virtuous cycle of economic stability and community well-being.
Learning from McDonald's: The Importance of Property Ownership
McDonald's strategic ownership of its land and buildings is a prime example of how this works—it delivers stability, long-term planning, and financial resilience. Similar ownership models benefit high-street businesses, providing security for sustained investment and growth.
Impact on High Streets
High street businesses' lack of property ownership contributes to a monotonous retail landscape. Historically, high streets were vibrant community hubs where people grew up knowing their local butcher, baker, and other small business owners. These businesses thrived across generations, passing from father to son, fostering deep relationships and strong community networks.
I remember growing up in such a community. My grandfather would do the "messages," as it's called in Scotland. He'd visit the butcher, catching up with his friend he had gone to school with, over the counter as the square sausage was cut and wrapped. Then, he'd go to the candy bar bakery for soft baps and rhubarb pie that Gladys had hand-made that morning. Next was the paper shop for my gran's 20 Players cigarettes, the sweet shop for lemon sherbets for me, and the toffee shop for him. Everyone knew my name, I knew everyone in return, and the high street was small but bustling. It was a true community.
This organic community structure has all but disappeared, mainly due to the greed of corporations prioritising profits over community well-being. These corporations often acquire properties, focusing on asset value rather than the health of the high street, frequently leaving units empty. Small businesses can only secure and invest in their spaces long-term with property ownership, leading to high streets becoming uniform, uninspiring, and often empty. The vibrant, unique high streets that once served as community hubs are disappearing, if not gone already, as businesses need more stability to build lasting relationships and networks.
Detailed Breakdown of Private Ownership of High Street Properties in London and Its Correlation to the Housing Crisis
Ownership Breakdown:
Only 15% of commercial property is owned by the business owner, making the situation dire. Imagine trying to build a home on quicksand—no matter how solid your structure, it will eventually collapse. This is the crux of the problem. Solve this, and you welcome vibrant, community-focused high streets and restore the rich, diverse, and supportive environments that once characterised our high streets.
Timeline and Decline in High Street Ownership
Correlation to the Housing Crisis
Price Increases and Ownership Concentration
Speculative Investments: Large property companies, REITs, and overseas investors have increased commercial property prices through speculative investments. This trend mirrors the residential property market, where speculative investments drive up housing prices, making them less affordable for small businesses and individual homebuyers.
Investment Focus and Community Impact
Commercial Impact: Institutional investors prioritize short-term returns, leading to higher rents and less investment in local amenities. This degrades high street vibrancy and makes nearby residential areas less desirable, exacerbating housing issues.
Residential Impact: Banks and financial institutions, by controlling interest rates and mortgage terms, exert significant pressure on homebuyers, similar to how large investors influence the commercial property market. High interest rates can squeeze out potential homebuyers, leading to housing insecurity and reduced homeownership rates.
Conversion of Commercial to Residential Properties
Dual-Edged Sword: Converting commercial properties to residential use can help address housing shortages but reduce commercial space availability, harming local economies and high street attractiveness.
Economic Instability
High Streets: Economic instability due to fragmented and speculative property ownership mirrors the instability in the housing market. The lack of long-term investment in both sectors exacerbates affordability issues and community fragmentation.
The overwhelming financial burden of high property costs and business rates are the two significant barriers to the long-term sustainability of the high street. Both established businesses and startups are failing despite various supportive measures, and this trend will only continue if these two issues are addressed.
High rents and business rates are the primary culprits in the decline of brick-and-mortar shops on the high street. Retailers are disproportionately affected, paying more in business rates than their economic contribution justifies, which adds to their financial strain (Centre for Retail Research, Acuity Law).
Although reforms like more frequent revaluations and temporary relief schemes exist, they are still far from resolving high rents and property valuations (GOV.UK, Retail Research).
The only sustainable solution lies in policies that include ownership of business premises, giving business operators more control over costs and stability. However, this approach will destroy the monopoly of the ever-increasing revenue for commercial property owners and their partnership with the tax man.
Here lies the root cause: the taxman benefits from high rents because his revenue is linked to these rates. Commercial property owners drive up rents while the taxman enjoys a "free ride" on the rising rates (Acuity Law, Retail Research).
In London alone, commercial landlords collect an estimated £15-20 billion in annual rental income, while the taxman takes over £8 billion. Tackling this issue demands strong political will, challenging the most powerful forces.
With 8 billion reasons to continue this monopoly, why would any government want to fix the problem?