Can we really afford for affordability to get any worse?

Published by EG Radius (03.05.2023)

UK, April 2023 – by Jamie Miller, surveyor at Rapleys

On paper, the latest ONS figures for 2022 paint a rosier picture with headline indicator revealing an increase in affordability in England and Wales. House prices have fallen by 3% while average earnings are up by 6%. This means they have revised their estimate that full-time employees could typically expect to spend around 8.3 times their workplace based annual earnings on purchasing a home in England. This is a significant decrease from the 2021 data which concluded that employees would be expected to spend 9.1 times their workplace earnings. On a headline level this is a significant decrease over a 1-year period.

Unfortunately, while the short-term trends look good for potential buyers the long-term statistics do not make for joyful reading. Furthermore, on closer inspection, the brighter short term figures can be explained due to the effects of the pandemic.

It is believed that the increase in house prices over the 12-month period to September 2021, the previous year’s data, is due to the Government measures over the pandemic to help increase house sale volumes including the changes with SDLT. This led to a sharp increase in the 2021 data and so the 3% fall in house prices in this year’s data is likely due to the fallout from these COVID measures being withdrawn. Similarly, the 6% increase in average earnings in the data has been affected by changes in the composition of the workforce and the impact of the Coronavirus Job Retention Scheme (CJRS) or furlough and the short-term effects this will have had on employees.

Either way, the long-term data is fairly bleak. Every local authority across England and Wales over the last 25 years has seen affordability significantly worsen with those in the south-east experiencing the largest change. This is further emphasised that in 1997 89% of local authorities had an affordability ratio of less than five times employee earnings, whereas this figure has now dropped to 7% in 2022. The south-east remained bottom of the affordability rankings with Kensington and Chelsea remaining as the least affordable area with an affordability ratio of 38.4. This is mainly due to the very high sales prices in the area without the proportionally higher earnings; however, this is not as high as the peak of 39.4 in 2019.

Copeland in the north-west remains the most affordable area with an affordability ratio of 2.9. The difference of affordability across the regions is perhaps best shown by the fact the most affordable local authority in London is still less affordable than the least affordable local authority in the north-east. It is also worth noting that while K&C is the least affordable area it is also the most diverse in terms of rich and poor in the country with a significant number of people in both the highest earning and most impoverished brackets and that in each local authority there will be a range of affordability too.

With the ‘cost of living’ crisis dominating headlines across the wider media with increases in energy prices, petrol and food, affordability for housing is likely to continue to be squeezed.  If the long-term trends continue to occur with house prices increasing faster than earnings this research is unlikely to produce positive reading for house buyers currently looking in the market particularly with various Govt-backed schemes aimed at supporting the process coming to the end of their tenure and without obvious replacements.

At the same time, the importance of affordable housing is likely to increase over the period. As such, Affordable Housing should be a key aspect of any Government strategy – albeit it was conspicuous by its absence from the Chancellor’s budget in March. We expect to see continued growth in this sector for the foreseeable future with private sector developers, institutions and social impact funds stepping in.

As one of the only full-service Affordable Housing consultancy teams in the UK, we have a unique insight into the challenges, solutions and opportunities in this sector. We firmly believe that strong collaboration between the private and public sectors is crucial to put together a roadmap for real and positive structural change and fix this problem that has been years in the making, across all political battlegrounds.