Analysis of the latest ONS data release shows that the urban geography of prosperity greatly differs between London and cities in the Midlands and North of England.
In October, the Office for National Statistics released their latest household income estimates for small areas in England and Wales. These are the most fine-grained income estimates available, each area comprising around 5,000 households (known as Middle-layer Super Output Areas, or MSOAs) and providing a record of incomes at the scale of neighbourhoods. Based on the 2019/20 financial year, these estimates provide an excellent snapshot of the geography of local-level incomes in ‘normal times’ before the COVID-19 pandemic.
The following analysis of this newly released data sets out three important points on the geography of income both within and between cities. It highlights the regional divide between London and the rest when considering: the extremes of national poverty and prosperity; the spatial distribution of income within cities; and the impact of cities on housing costs in and around their borders.
Starting at the top of the pile, every single one of the top 50 richest neighbourhoods in England and Wales is within the London Primary Urban Area (PUA), shown in Figure 1 below.
Source: ONS
Notes: Map shows the extent of the London Primary Urban Area (PUA). Thin white lines are 2011 MSOA boundaries, while thick white lines are Lower Tier Local Authorities (including London Boroughs). Top 50 MSOAs by average household income are labelled with names of their closest matching Wards, and only if the names of these wards convey specific geographical information (e.g. the name of a town or area). Incomes are net equivalized household incomes before housing costs at 2019 prices.
These neighbourhoods are even concentrated within London, particularly in west-central and south-west areas. Almost half of these neighbourhoods are in just two boroughs: Westminster and Kensington & Chelsea. Looked at another way to highlight the concentration of prosperity, over half the MSOAs in each of these two boroughs are in the top 50 richest nationally. The very richest is the neighbourhood covering parts of Knightsbridge and Belgravia, where the average household is estimated to earn £67,000 annually after taxes. Other pockets of prosperity are seen around Hampstead in the North and towards Surrey in the peripheral south-west.
Neighbourhoods with the lowest average household incomes are also in cities, but they are in concentrated at the other end of the country (Figure 2). 46 of the 50 poorest neighbourhoods are within cities exclusively located in the East Midlands and the North. Over half (14 out of 26) of the cities in four regions – East Midlands, Yorkshire & the Humber, North East, and North West – contain at least one of the poorest neighbourhoods in the country. Bradford and Leicester are the most represented with eleven and eight MSOAs within the bottom 50 respectively, most of these located near their city centres. The average annual household income of the poorest neighbourhood in England and Wales (Bradford Moor, £16,700) is four times lower than the richest according to the data, even after taxes and transfers.
Source: ONS
Notes: Map shows the regions of East Midlands, Yorkshire & the Humber, North East, and North West. Thin white lines are 2011 MSOA boundaries, while thick white lines are region boundaries. PUA boundaries are marked in red and labelled if the PUA contains at least one of the bottom 50 MSOAs by household income – other PUAs not shown. Incomes are net equivalized household incomes before housing costs at 2019 prices.
Looking at the very ends of the neighbourhood incomes distribution paints a picture of the North-South income divide in the extreme. As London is home to the highest concentration of knowledge-based high productivity jobs, it is not surprising that the highest income households are found there, though this does not explain their degree of concentration within a few hotspots. At the other end of the spectrum, localised extreme poverty overwhelmingly occurs in cities (and specifically those outside the South), rather than outlying towns or rural areas. Taken together, it demonstrates that city-targeted economic policy will directly affect both the living standards of the very poorest and the incentives of the very richest in the country.
Looking at where high-income neighbourhoods are located within a city can provide clues as to the patterns of spatial inequality within an urban area. Figure 3 shows how average neighbourhood income changes with distance to the city centre of the largest cities in England and Wales.
Source: ONS, Centre for Cities’ calculations
Notes: Charts contain smoothed conditional means of incomes of all neighbourhoods within each PUA boundary. Distances measured from the pre-determined centre point of each city (based on Centre for Cities’ standard definition) to the centroid of each MSOA. Incomes are net equivalised household incomes before housing costs, all stated in real terms at 2019 prices. The conditional mean series is estimated by locally weighted smoothing (LOESS). Shaded areas are 95 per cent confidence intervals. MSOA average incomes are additionally weighted by number of households from 2011 Census for 2011/12, and 2021 Census for 2019/20. 2011 MSOAs used.
The 2019/20 data (marked by the green lines) again sets London apart from the rest. There is a clear geography to income in the capital – the richest neighbourhoods are almost exclusively near the city centre, while the average prosperity of neighbourhoods quickly falls and flattens out at 10-20 kilometres distance. The presence of wealthy suburbs and commuter towns somewhat lifts the average for the outskirts of the PUA.
This pattern does not hold for other large UK cities, all of which are found within the Midlands and the North. In Leeds and Newcastle, the opposite is the case – higher-income neighbourhoods are found at the fringes of the urban area, while the poorest on average are more central. Finally, Manchester, Sheffield, and (particularly) Birmingham all see a ‘hump’ among neighbourhoods just under ten kilometres from their city centres.
Comparing these patterns to eight years previously (the purple lines) shows that the most drastic changes in cities’ spatial distribution of income is happening near city centres. Manchester and Sheffield in particular have seen the ‘London-ification’ of the geography of household income over time, where the richest households locate more centrally (marked graphically by the lines ‘flicking up’ on the left-hand side). This ‘London-ification’ has been so rapid that some of the poorest neighbourhoods in these cities in 2011, located just a couple of kilometres from the centre, are now some of the richest. To some extent this has inverted the whole income-distance gradient in these cities. Birmingham (where incomes are up at every distance) has experienced similar changes over the same period. Even London itself has become more ‘London-ified’ – neighbourhood incomes now rise far more steeply with proximity to its centre than in the early 2010s.
The changes reflect how the offer of city centres has continued to change over the 2010s, a transformation with its origin in the 1990s. Previous work by Centre for Cities has shown how, with the increasing location of knowledge-based jobs in city centres, high skilled workers have been attracted to moving close to their workplaces by the concurrent development of leisure and cultural amenities in these areas. The recent upticks in neighbourhood incomes close to central Birmingham and Manchester then reflect their rapid city centre developments. Alongside high housing costs (see Section 3 below), this can also explain central London’s increasing income gradient (along with the observed ‘suburbanisation’ of lower income households). Conversely, the relative stasis of incomes in (for example) Newcastle points to underpowered city centres with little improvement in both economic and residential opportunities. Similarly Leeds, though having a stronger city centre (evidenced by average incomes reaching £35,000 near its outskirts), has not seen much real terms change over the period.
High demand for jobs and housing shortages have not only led to high housing costs within London, but have spread these beyond its borders into the wider South East. This can be seen by comparing the relative housing costs of neighbourhoods both within and surrounding England’s three largest cities – London, Birmingham, and Manchester.
Figure 4 shows London has a far higher proportion of its income absorbed by housing costs than Birmingham and Manchester. On average, London households (despite higher incomes) spend 15 per cent of their income on housing costs, versus 12 per cent in Birmingham and only 9 per cent in Manchester. For Inner London boroughs, this proportion rises to 18 per cent.
Source: ONS, Centre for Cities’ calculations
Notes: Based on net equivalized household income before and after housing costs. Proportions weighted by number of households per MSOA from the 2021 Census. 2011 MSOAs used. Commuting areas are determined by MSOAs that lie outside the PUA but within the PUA’s high-skilled Travel to Work Area (TTWA), which trace out the self-contained labour market of a city. MSOAs in commuting areas are further divided into urban or rural areas using ONS definitions.
These housing costs bleed into London’s surrounding commuter areas outside the city. A household in an urban neighbourhood within commuting distance to London typically spends more on housing costs as a proportion of income than a Manchester household, and only one percentage point less than in Birmingham. Even those in rural neighbourhoods within the London commuter belt spend a similar proportion of income on housing to urban areas in the rest of England and Wales. By comparison, housing costs as a proportion of income in the Birmingham and Manchester commuter belt are far lower, even with the lower average household incomes in these areas.
This overspill of housing costs in and around London drives home the fact that the national housing stock shortage radiates from the capital. The data once again underlines the need to build more homes in the places where demand is highest to alleviate pressure on incomes. So Michael Gove’s expected announcement slashing housebuilding targets for the green belt is concerning as it would further eat into household incomes in high-demand areas. The Secretary of State should instead be advocating for the release green belt land for housing development around stations to increase the supply and reduce the costs of housing in neighbourhoods in and around city regions.
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