High housing costs has doubled the number of people in their 30s leaving the capital

London’s expensive property prices are leading to an exodus of people in their early 30s from the capital, according to a report showing the economy of Britain’s biggest city increasingly dominated by low-skill jobs.

A report from the Resolution Foundation thinktank said the blow to living standards caused by high housing costs meant more people were leaving London than arriving from the rest of the UK.

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While London’s overall population has grown by 1.6 million since 2001, the number of people in their early 30s leaving the capital has doubledsince 2009 meaning net internal migration out of London climbed to 90,000 last year.

Recent evidence has suggested that the housing market in London is cooling following a rapid increase in prices that saw property become increasingly unaffordable for young people.

The Resolution Foundation said “oppressively” expensive housing and weak earnings growth was leading to a “living standards exodus”. The report found that high housing costs turned London from the highest income region of Britain to below the national average. Before housing costs, typical incomes were £28,600 in London compared to £26,400 in the rest of the UK, but once housing costs are taken into account incomes in London were £21,350, compared to £22,250 across the UK.

The thinktank said the average household in London is now paying a £5,400 “housing failure bill”, reflecting the extent to which rising housing costs had outpaced income growth over the last 50 years. Falling home ownership meant London was now the only region of the UK where the typical household had no net property wealth.

Countering the view that the capital has been out-performing the rest of Britain since the financial crisis of a decade ago, the thinktank said London’s weak productivity was holding the country back.

London’s economy has grown by 17% since 2007 – more than double the 8% growth rate for the UK as a whole, but this was due entirely to higher employment and hours worked rather than rising productivity.

Job growth has largely been in low-paying, low-productivity sectors, such as hospitality (up 35%) and administrative services (up 29%). Even where employment had increased in higher-paying, high-productivity sectors, such as ICT and professional services, those sectors had seen a significant slump in productivity (down 5% and 2.5% respectively.)

As a result, London’s productivity had actually fallen over the last decade by 1%, compared to an increase of 1.5% across the UK as a whole.

Stephen Clarke, senior economic analyst at the Resolution Foundation, said: “London has always played a key role in the UK economy. But that role has changed over the last decade and is often misunderstood.

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“People assume London’s economy has been running away from the rest of the UK since the financial crisis. But London’s economic growth is purely down to its population explosion, with hospitality replacing banking as the big growth sector in the capital. Sectors that have traditionally powered London’s productivity growth, from finance to IT, are if anything going backwards.

“This shift has been great news for employment. But it means that London, far from racing ahead, has actually been holding the country back on productivity, with troubling consequences for pay and living standards.”