Gentrification: end of an era?

Dec 08, 2014

“Social housing not social cleansing” demand banners outside the New Era estate in Hackney, East London, where a development designed for low-income workers risks becoming luxury flats. 

New York-based Westbrook Partners, New Era’s owner since March, wants to refurbish the estate and charge market rents – about three times what tenants currently pay. 

Protests against the plan have won national media coverage, but even if New Era’s 93 households are ultimately forced out, their plight could mark the high watermark of urban displacement in London.

Since 2000 Hackney’s house prices have more than tripled as hordes of young professionals have flocked to a once dilapidated neighbourhood now transformed into a creative and cultural hotspot.

With them have come developers erecting batteries of so-called “yuppie flats”, often on brownfield sites but sometimes in place of the social and affordable housing that poorer London residents rely on.

Now priced on average at £400,000 ($640,000) for 50 square metres, about two-thirds of new flats are sold to buy-to-let investors rather than owner-occupiers.

However, the allure of buy-to-let in London has evaporated as rents have failed to keep pace with rocketing property prices.

After expenses the gap between rental income and mortgage outlay on an inner-London flat now rarely exceeds 3.5%, prompting prospective landlords to look for better yields outside the city.

Property values, up almost a fifth in Hackney since early 2013, are also stabilising as banks tighten mortgage lending and people prepare for expected interest rate rises in 2015.

More importantly, the demand-supply imbalance – the engine of price rises in places like Hackney where social accommodation accounts for almost half of all housing stock – is slowly resolving itself thanks to the surge in property development.

Nowhere is this more evident than East London’s Regent’s Canal, a relic of the industrial revolution that now flows for miles through a canyon of brand-new apartment blocks.

But many of these are struggling to find buyers as even small London flats move beyond the reach of ordinary earners.

The last 20 years have seen home ownership rates among British 25-34-year-olds drop from almost 70% to about 40%, while mortgage approvals are at half pre-crisis levels.

Wealthy investors have replaced young buyers until now, but their motivation is slipping as rents reach an affordability peak.

In New Era, for instance, a refurbished two-bedroom flat is listed for £600 per week ($960) – half the combined salaries of two people earning the median London wage.

For such an enormous outlay they would receive 70 square metres in a stark brick development that resembles the projects of Baltimore or Philadelphia.

The similarities extend beyond the architecture: Hackney remains the second-most deprived local authority in England, with a quarter of children living in poverty and some of the highest rates of sub-standard housing.

Such problems may have been overshadowed by a decade of manic gentrification, but there appears to be little scope for the balance of rich and poor to shift much further.