Duncan Stott, director of the affordable house price campaign PricedOut, explains what “affordable” should mean, how it simply does not apply to the current housing market – and what can be done about it
What do we mean by an “affordable home”? On the one hand, the term is used by government as a catch-all term to describe housing provided at below-market rents and prices. But as the housing crisis has grown, even “affordable” housing schemes are often unaffordable to most.
To give meaning back to the word “affordable”, we should look at what it means at a fundamental level: a measure of how housing costs compare to people’s incomes. This creates a basic metric to assess the affordability of housing: take the average house price in a local area and divide it by the average local income.
Affordable no more
Whenever this calculation is carried out, alarm bells are raised. The UK as a whole is internationally classified as “seriously unaffordable”. The eye-watering cost of housing in London is notoriously extreme, but the capital is far from alone. Bristol, Brighton, Bournemouth, Oxford, Reading and Cambridge all have house prices at over 10 times the average annual income.
Let’s not forget rural areas either, where lower wages have no chance of competing with holiday homes and older buyers looking to spend the gains of their incredible house price inflation during their working life on a piece of the countryside for retirement. The most extreme examples of unaffordability are found in Cornwall, the Cotswolds and Cumbria.
Does this mean the housing markets in the rest of the UK are in good shape? The simple answer is no. Every region of the UK has now seen house prices exceed their pre-recession peak. Even after excluding London from the mix, house prices are up 90% since 2002, vastly outstripping the overall rate of inflation.
But affordability is also not just about house prices; it’s also about how much buyers are earning. Unfortunately the trend here has only exacerbated the problem. Real wages for younger workers are now down to the levels last seen in the 1980s.
In summary, first-time buyers are being stretched from both ends. Our pay hasn’t kept up with inflation, but house prices have outstripped inflation. The outcome is inevitable – as the latest Demographia housing affordability survey puts it bluntly: “There are no affordable housing markets in the United Kingdom.”
Within the power of a new government
But the future of the housing market isn’t inevitable. House prices are a direct result of government decisions. From the planning system which directly controls the supply of housing, to the regulation of mortgages which keeps a leash on how much debt pours into the market, we must demand action from the politicians who seek our votes in just two months’ time.
It’s for this reason that we are asking the next government to establish one simple target: an end to house price inflation. If house prices were to stabilise, it would allow pay to catch up, gradually bringing affordability back to first-time buyers.
Naturally we would love it if a house price crash came along this week, but we recognise that the government is never going to actively pursue a dramatic price fall. So instead, we are calling for the government to monitor house prices, and treat any sign of a rise in nominal house prices as a trigger to enact bolder action on housebuilding, property taxation and mortgage regulation.
Stable house prices would have wider advantages too. Take the housebuilding industry. We have a small number of big developers who battle over every scrap of land that has a chance of getting planning permission. They therefore are under pressure to pay high for land and then rely on further house price inflation to make a profit.
If developers knew that government was not going to allow further house price inflation, it would allow them to bid for development land at sustainable prices, and also help smaller builders to access this land too. The last decade has seen a backlog of 1 million homes that were needed but didn’t get built. A target of zero house price inflation would help get the homes we need built.
Demand for action
Will politicians ever adopt such a target? The latest official statistics show that first-time buyer house prices have actually been broadly flat for the last six months, but no politician has expressed an opinion on whether these recent trends are welcome. There is hope in the form of Grant Shapps, the Coalition government’s first Housing Minister, who spoke out favourably towards stable house prices. Unfortunately one of his successors, Kris Hopkins, rather went against the grain of this, suggesting that people who own a house should “expect the value to rise”.
Any party willing to push for stable house prices would find a warm reception from the public. Opinion polls show that a majority of people now think that rising house prices are bad for the country.
As the housing shortage grows and homeownership slumps, the problem of housing market affordability will only grow as the housing crisis hits increasingly higher earners. It’s high time for politicians to take action against rising house prices to meet the needs and aspirations of younger voters.