Housing affordability at an all-time low

In March, the Office for National Statistics (ONS) and HM Land Registry released new statistics detailing how unaffordable housing has become in England.

The ONS revealed that in England in 2021, full-time employees could typically expect to spend around 9.1 times their workplace-based annual earnings on purchasing a home, an increase since 2020, when it was 7.9 times their workplace-based annual earnings.

The ONS also said that house prices grew faster than earnings in 91% of local authority districts, leading to a reduction in housing affordability in these areas. Copeland in the North West was the most affordable local authority in England, with average house prices at 2.7 times the average workplace-based annual earnings. Kensington and Chelsea was the least affordable local authority, with average house prices being 36.5 times the average workplace-based annual earnings.

Across the country, new homes were consistently less affordable than existing homes. In 2021, prices of new homes in England were 10.3 times the median annual earnings of full-time employees. In existing homes, prices were 9.0 times the median annual earnings of full-time employees.

HM Land Registry released data which showed a similar picture. In England in January 2022, the average price of a property is now £291,560, a 9.4% increase on last year and a 43.7% increase from January 2015. This growth varied significantly by region. The East Midlands was the fastest growing region with annual house price growth of 11.6% in the year to January 2022. The lowest annual growth was in London, where prices increased by 2.2% over the same period.

Once again, Kensington and Chelsea was the least affordable area in England, with an average house price of £1,403,815, compared to just £110,453 in Burnley. But it is worth noting that house prices in Burnley increased by 14.3% over the previous year, suggesting that even in the cheapest areas, houses are rapidly becoming less affordable.

HM Land Registry said there was a significant price premium for newly built homes. In England, the average price of a new home is now £392,091, compared to £281,852 for an existing home.

Rapidly rising house prices suggest a buoyant housing market, with ever-increasing demand despite any economic disruption caused by Brexit or the COVID-19 pandemic. These statistics were released before the war in Ukraine started, but there is no evidence that it has had an impact on house prices either. Nor is there an indication yet that rising consumer price inflation is forcing people to spend less on buying houses or renting. This is good news for the property industry, who can expect healthy profits and sustained demand for delivering new homes.

However, the broader economic consequences are less sanguine. The decreasing affordability of homes will depress household incomes, at a time when wider inflation is reducing living standards. Fewer people will be able to afford to buy a home, and new homeowners will be older and more reliant on financial assistance from their families. More young people will either live with their parents or be priced out of where they grew up. The government recognises that we have a housing crisis and all readers of this article are collectively part of delivering the solution.

Author: Owen Bell

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