Housing Affordability is Officially Worsening across England, Reports the ONS

The Office for National Statistics (ONS) has published a Housing Affordability report covering the period 1997-2017, which indicates that affordability is officially worsening across England.

In 2017, full-time employees could typically expect to spend around 7.8 times their workplace-based annual earnings on buying a home in England and Wales, for which the report covers. This is up from an affordability ratio of 7.6 in 2016, which is a rise of 2.4% between 2016-17. This change was driven largely by the declining housing affordability in England, where the ratio increased from house prices being 7.7 times annual earnings in 2016, to 7.9 in 2017, which marks a rise of 2.5%.

There were no significant changes in the ratio of median house prices to median annual earnings in Wales between 2016-16. The latest year that the affordability ratio was substantially different from 2017 in Wales was in 2007, therefore, affordability has only significantly changed over a ten-year period.

Housing affordability worsening at quicker rate in flats and newly built properties

In 2017, detached properties were the least affordable homes in England and Wales, whereas terraced houses were the most affordable.

Flats and maisonettes have seen the largest change in housing affordability over time in both England and Wales, but the rise was larger in England (141.5%) than in Wales (85.8%). This is likely to reflect the influence of increasing prices for flats in London, which has driven the largest growth in England overall.

The affordability of terraced properties has seen the second largest change in England, but has experienced the smallest change in Wales. This is because the increase in the median price paid for terraced houses in Wales (201.4%) is smaller than the increase for terraced properties in England (283.1%) between 1997-2017.

Last year, full-time employees in England and Wales could expect to spend 9.7 times their median gross annual earnings on buying a newly built home. Purchasing an existing dwelling in England and Wales in 2017 was significantly more affordable, with house prices of existing homes being on average 7.6 times earnings.

Areas with higher prices do not always have higher wages

In 2017, the Royal London Borough of Kensington and Chelsea was the least affordable area to purchase a property in England and Wales, both when workplace-based and residence-based earnings were taken into account. It had the highest ratio of median house price to median workplace-based gross annual earnings, with house prices being 40.7 times earnings. House prices in the borough were 28.9 times residence-based earnings last year.

Kensington and Chelsea had the highest median house price in 2017, of £1.3m, but it was more affordable for residents of the borough, who may not necessarily work there, rather than for employees in the borough who may not necessarily live there.

Copeland, in the North West of England, was the most affordable local authority in 2017, both when workplace-based and residence-based earnings were used. It had the lowest ratio of median house price to median workplace-based gross annual earnings, with house prices being 2.7 times earnings.

Housing Affordability is Officially Worsening across England, Reports the ONS

House prices in Copeland were 3.0 times residence-based earnings in 2017, therefore, it was more affordable when workplace-based earnings were used to calculate the housing affordability ratio. This means that it was more affordable to purchase a property in Copeland if you worked there but may live elsewhere, than for those who live in Copeland, but may not work there.

Although Copeland was the most affordable local authority in England and Wales, it does not mean that this local authority had the lowest house prices or the highest earnings; rather it has the highest earnings in relation to house prices.

There is a positive correlation between the median price paid for a home and the median gross annual salary. This means that, generally, the higher the earnings of a local authority’s employees, the higher the house prices. However, not all local authorities follow this trend.

Buying a home in Kensington and Chelsea was relatively less affordable in 2017 compared to all other local authorities. For those working in the borough, the median gross annual salary was £31,950, whilst the median house price was £1.3m. With median house prices being around 40 times the median gross annual earnings, it suggests that income from other sources, in addition to employee earnings, would contribute towards affording to live in these areas. However, homeowners in Kensington and Chelsea may work in other areas where earnings are higher, which is reflected by the residence-based earnings being higher than workplace-based earnings.

Copeland, on the other hand, has a relatively high median annual salary and a relatively low median house price, making it fairly affordable to own a property there. The median annual salary was £47,221, which is in the highest 1% of all local authorities, whereas the median house price was £128,000, which falls in the lowest 10% of local authorities. In Copeland, there are a large number of relatively high paid, skilled jobs at the Sellafield nuclear power station, which could partly explain why properties appear more affordable in this area.

House prices driving worsening affordability in the South East and East

Between 2016-17, there were two regions in England and Wales that had significant changes in the ratio of median house price to median workplace-based annual earnings. The East of England experienced an increase in ratio of 7.8%, from 9.0 in 2016 to 9.7 in 2017. The South East had a rise of 5.1%, from 9.8 to 10.3 over the same period. All of the regions in England and Wales witnessed an increasing ration and, therefore, worsening housing affordability over the year, except for the North East and Wales, although only the South East and East had significant changes.

House prices and earnings rose in all English regions and Wales over this period, but the two regions with the largest increase in house prices (the East, at 10%, and the South East, at 6.9%) were the two regions with the significant differences over the year. This suggests that house prices are driving the substantial worsening in housing affordability.

Earnings increased for all regions and Wales, but to a smaller extent than house prices in many regions, with the largest rise being around 2.9% in London. There were two areas in which the percentage change in earnings was greater than the percentage change in house prices, and these areas therefore had improving housing affordability. These were the North East and Wales, however, these changes in affordability were not significant.

House prices were up in 94% of the local authorities in England and Wales between 2016-17, with 206 local authorities witnessing growth of 5% or more. All local authorities in the East and the South East of England experienced a rise in house prices.

Housing affordability worsened the most in London over five years

There were 69 local authorities in England and Wales that had significant differences in the ratio of median house prices to median workplace-based annual earnings over the five years between 2012-17. Over three-quarters of these local authorities were in London, the South East and the East of England. There were no significant differences found over this timeframe in the North East or Wales.

In 2017, of the ten least affordable local authorities, seven were in London. All but five London boroughs had a significant worsening in housing affordability since 2012.

The London Borough of Barking and Dagenham had the largest percentage increase in the affordability ratio, meaning that this local authority has worsened the most in housing affordability over the last five years. This predominantly resulted from a 77.3% increase in median house prices since 2012.

From 2006-16, Barking and Dagenham was the most affordable local authority in London, however, the affordability ratio has increased steadily over time and has become less affordable than Tower Hamlets in 2017.

Shaun Church, the Director of mortgage broker Private Finance, comments on this report: “The latest housing affordability figures paint a worrying picture for those hoping to make their first step onto the housing ladder. Traditional first time buyer homes – flats, maisonettes and terraced houses – have witnessed the largest negative change in housing affordability. As the demand for starter homes has soared, construction has halted – pushing the prices far beyond the reach of many hopeful homeowners.

“The Government is taking a proactive approach to helping first time buyers, with schemes such as Help to Buy. However, with new build affordability worsening at a much faster rate than other property types, questions must be asked about whether schemes with an exclusive focus on new builds are over-inflating prices and will distort the market even further in the long-term?”

He continues: “While the price of entry to homeownership in the UK has soared to almost unreachable heights, the cost of owning property has declined significantly. Back in 1997, homeowners faced interest rates of 6.25-7.25%, which have since fallen to record lows of 2.5-0.5% over the last decade. Mortgage finance has become far more affordable and, as house prices climb, this continues to be the one aspect of the market currently working in homeowners’ favour.

“With a rate rise rumoured to be just around the corner, borrowers should consider locking in to the favourable rates currently on offer. The next rise may only be incremental, but with housing affordability continuing to decline, a good mortgage deal will help make the eye watering cost of UK property that bit more manageable.”