UK Housing Crisis: What Housing Crisis

Affordability

England is in the midst of a housing crisis that has evolved through the generations as the demand for housing far outstrips supply.  On average 125,000 new houses are built per year in England, whereas the minimum requirement for the burgeoning population is 250,000 per year.  The direct result of this is that house prices are spiralling out of the reach of the average working person, people are being locked out of home ownership, and locked into a life of continuing uncertainty in the private rental market. House prices have more than doubled in the last 40 years even allowing for inflation.

Wages for the average worker in the UK have not been able to keep up with the rising house prices, across the whole of the UK the average home now costs 7 times the average salary compared with 4.5 times in the 1960s.

The average income required for a first-time buyer is £36,500 which is nearly double that of the average first-time buyer in the early 1980s (£20,000) after accounting for inflation.  The average deposit required for a first-time buyer is £30,000 which is almost 10 times the deposit required in the 1980s (£2000-£3000) again after accounting for inflation.

As a result of the housing crisis the gap between the “haves” and the “have-nots” is widening with people between the ages of 24-40 being increasingly forced onto the rental market, a decrease of more than 10% in the number of 25-35-year-olds buying property over the last 5 years.  The number of 25-34-year-olds renting on the private market has increased by 50% over the same period.

On average, homeowners with a mortgage spend around 20% of their income paying the mortgage.  However those that are renting privately spent 40% of the income on rent.  As younger people are more likely to be renting privately, this makes saving for a deposit harder, in 2005 roughly a third of first-time buyers had to use financial assistance from their family in order to purchase a house, in 2011 this had risen to two thirds.  

Regional Variations

As a general rule the least affordable areas are in the south of England where housing pressures are generally more acute. House prices in London were close to £500,000 in 2013 they had almost doubled in a decade. The average house in London has increased by £41,000 annually, a figure which is £8000 more than the average gross London salary.  However there are differences between the 33 boroughs in London, with the average house price being lower in some boroughs than in others.  If house building continues at its current rate, London will face a shortfall of over 700,000 homes by 2031.

Other places with high price rises include the Local Enterprise Partnership areas of the enterprise M3, Hertfordshire and Oxfordshire which all showed an average house price of more than £320,000 in 2013.

In the North of England house prices are lower, but affordability issues still remain with house prices being at around 7 times that of the average local salary.

Implications of the Housing Crisis

The housing crisis has far-reaching and profound implications as a whole, generation of people are locked out of home ownership for the lifetime, condemning them to the insecurity of life in rental property, and increasingly, private rental property.  The increasing house prices and demand for rental properties has the knock-on effect of increasing the rents that tenants have to pay; and as the rents become increasingly unaffordable, the cost to the taxpayer through an increasing housing benefit bill becomes ever more apparent.  The housing benefit bill in England has risen by 150% from £8.7 billion to £21.5 billion in 21 years (inflation accounted for).

The social implications become even more apparent as families are forced to live in cramped, overcrowded accommodation and live a transient lifestyle as they are forced to move due to the lack of security of tenure. Children in families where the family has had to move house on several occasions are unable to “put down roots” and have to change schools more than once or twice.  Such transient lifestyles, the children often lead to behavioural and mental health issues both in the short and the long term and can lead to several generations of families who are locked into a life of benefits.  Increasingly people’s earnings do not cover all their living costs meaning that even those in full-time employment (including those who are classed as “middle-class earners”) become reliant on the Government and the taxpayer for benefits.  The percentage of claimants from middle-income households between November 2008 and May 2014 has increased mostly in those with gross incomes of around £20,000-£30,000 and accounts for 350,000 households (two thirds of all new claims made within this period).

More and more people in the 18-35 age group are having to live at home with their parents, due to the increasing costs of private rents and the lack of an opportunity to purchase their own home.  Parents who have to support their adult children are unable to release the equity in their homes by downsizing and are less able to save towards their pensions; it could also be argued therefore that the housing crisis is building up a pension’s crisis for the future.

The fact that more and more first-time buyers are reliant on their parents for financial assistance in order to purchase a home, means that the property wealth in England is owned by the older age groups, this is particularly so in the South East, South West and London (accounted for 35% of the total property wealth in England).  The implication here is that if the housing market continues as it is a person’s ability to own a property will be reliant on not solely on their own income and status but also on their family background.

On current trends the average property wealth in London (being £239,000) is twice as much as the average property wealth in the North of England (between £108,000 and £120,000.  If this trend continues,  the two tier society between the south of England and the North of England of the Victorian era will have returned.

Public Opinion

A recent YouGov Poll commissioned by the National Housing Federation found that 8/10 (77%) of people polled did not believe in any of the mainstream political parties will effectively deal with the issue of housing. Only one in four of the people polled thought the housing situation will generally improve in the next 10 years, 77% (three quarters) of the people polled thought it was harder to own a home today than it was in their ‘parents’ generation.

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