From the TUC

Houses are unaffordable in five out of every six local authorities

01 Sep 2014, by in Economics

Today the TUC has issued an analysis of changes in housing affordability in local housing markets across England.  Predictably, areas of central London come out worst – the average house price in Kensington and Chelsea is now over 30 times the median annual salary in the area.

But the analysis also shows that house prices are increasingly out of reach across the whole of the country. In 2013, only one local authority has a house price to earnings ratio (or affordability ratio) of less than three (Copeland in the Lake District). Five in six local authority areas now have an affordability ratio of more than five.

The analysis of local authority figures from the Department for Communities and Local Government is based on median house prices from Land Registry data, which extend to the middle of 2013, and median earnings data from the Annual Survey of Hours and Earnings.

For the purposes of analysis, affordability ratios of less than three are regarded as ‘easily affordable’, while ratios above five are ‘out of reach’. Plainly these are only indicative, based on a single salary and different from loan to income ratios that banks use when offering mortgages as they will not take into account any deposit. Nonetheless, with the Bank of England recently announcing restrictions on the numbers of mortgages at loan to income multiples of 4.5 per cent and above, it seems reasonable to assume that affordability ratios of five are of significant concern to the financial authorities.

A number of areas, such as Stockton-on-Tees and Southampton, have moved from easily affordable to out of reach in the last sixteen years, while over the same period affordability ratios have doubled in most areas of the South West. This chart summarises how affordability has changed across all LAs:

Affordability ratios at local authority level

housing ratios by local authorities

In 1997, 88 per cent of local authorities were affordable or easily affordable, and only 11 per cent unaffordable. In 2013, 84 per cent were unaffordable and only 16 per cent affordable. On this (indicative) basis the great part of the country is captured by the Bank’s restriction. It is worth remembering too that these figures still reflect the market a year ago: since then prices have risen and real earnings continued to fall across much of the county.

That is not to say the restrictions are not sensible. Excessively relaxed lending criteria, and lending at increasingly higher loan to income ratios have undoubtedly been a factor in rises in house prices over this period, compounding failures of building and, since the crisis, falling real earnings. In June this year, the Governor observed the “proportion of new mortgages at high loan-to-income ratios now at an all-time high”.

The Bank’s reactions are symptomatic of fundamental problems: government schemes may have revived the market, but the financial authorities quickly took fright at the nature of that revival.

Declining housing affordability helps to explain the growth of private renting, which new research from the Resolution Foundation and Chartered Institute of Housing shows has now reached four million households. The growing number of people who either choose to rent, or are forced because they can’t afford to buy anywhere, are often clobbered by rising rents and can be easy prey for unscrupulous landlords. Renters need a better deal from the UK’s housing market.

House price inflation is hardly a new trend in England. But the lack of affordable housing is certainly becoming a huge concern, and not just for those trying to get a foot on the property ladder either. New research out today from the National Housing Federation, shows that eight in parents are worried about housing affordability for their kids. It’s striking that even those benefiting from rising house price are worried about what it means for future generations.

With decades of failing supply, two million unemployed and interest rates at record lows, a house building programme does not seem like rocket science.

2 Responses to Houses are unaffordable in five out of every six local authorities

  1. Matt
    Sep 2nd 2014, 9:49 am

    Can you please add a share button to posts ASAP?

    Sep 3rd 2014, 11:47 am

    Great article. Geoff Tily’s analysis needs to be read and thought about carefully (perhaps twice). I agree with Geoff Tily that the restrictions on mortgage lending are a good idea. The Treasury took responsibility for vast debts in the private housing markets and consumer credit debt in 2008/9 (something Labour leader John Smith first warned about in the early 1990s). National publicly-held debt has now skyrocketed, to twice the level it was before the financial crash of 2008.