1. Economics
August 16, 2016

Six things we learned from today’s ONS house price index

By Jonn Elledge

It’s another lovely sunny day here in London – perfect weather for chilling out and drinking wine and generally not having a care in the world. So what better way is there to really rain on your parade than by talking about the bloody housing crisis yet again?

Yep. The Office for National Statistics just put out another set of data showing that – sit down, this may come as a shock – house prices have risen. Again. They climbed by 8.7 per cent in the year to June. Your wages, the odds are, didn’t.

This data only covers the period to the end of June: if Britain’s vote to leave the European Union on 23 June has had any impact on home values, then it almost certainly won’t show up in this data.

But that caveat out the way, here’s what we learned.

The average UK house price stood at £214,000 in June 2016.

Based on standard mortgage rates (10 per cent deposit, 4.5 times income multiple), you now need to be earning £42,800 a year and have £21,400 in the bank to buy that house. Easy, right? You’ve got that?

Oh – the price is also up £2,100 in a month, and £17,000 in a year. So if you’re saving for a home, and put away less than £1,700 this year, you’re actually slightly further away from your target than you were last summer.

(Obviously these figures are based on a single earner rather than a couple, and very few first time buyers buy the average house, and yada yada yada. I’m just illustrating a point here.)

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The rate at which prices have risen has been accelerating.

It’s not just that prices have been climbing: they’ve been increasing the rate at which they climb. Check out this graph:

That’s not prices, that’s just the rate of increase in prices. Which has itself been increasing since last autumn. Before that, it increased steadily from autumn 2012 to autumn 2014.

The dip between those two periods probably coincides with uncertainty around last year’s general election. (For a while, prices increased, but did so more slowly. Great.) It wouldn’t be crazy to imagine that we might see something similar post-Brexit. Watch this space.

The UK average is being distorted by England…

Scotland and Wales still look relatively affordable:

Mind you, the really striking thing here is Northern Ireland. That was one hell of a crash.

…and England is being distorted by London.

Prices in the capital are well over twice those outside the south. They’re over four times those in the north east.

So house prices are higher in the south of England than in the north. Generally, much higher.

That said, it’d be a mistake to assume this means that the housing crisis isn’t a national phenomenon. Remember this graph from the Resolution Foundation?

Click to expand.

Home ownership rates have fallen almost everywhere; and the single biggest fall actually came in Greater Manchester, a long way from London.

London prices make its housing crisis the most visible. But cheaper house prices aren’t much help if wages are lower, too. 

But the biggest increase in prices came in the East of England.

This graph shows the percentage increase in house prices in each of the eight English regions over the last year.

Prices are up, significantly, everywhere but the north east (and even there, that increase is still three times the 0.6 per cent increase in consumer prices).

But they’re up by far the most in and around London. And they’re up most of all in the East of England (that’s Essex, Herts, Beds, and East Anglia).

It’s probably a mistake to see this phenomenon as separate from London’s housing boom. Much of that region is in London’s commuter zone (bits of it are even on the tube). It may be that people are paying more for homes in Hertfordshire because they’ve been priced out of north London or Surrey.

But London might finally have peaked.

Last chart. This one shows the local authorities where prices have increased, or fallen, by the most over the past year.

Look at the bottom half of the chart. Kensington & Chelsea, and Hammersmith & Fulham, are two plush West London boroughs, fashionable along the sort of people who use London property as safe deposit boxes. These figures are not good news for the Prime London property market, or the sort of estate agents who sell in it. Poor lambs.

These figures, as noted, pre-date Brexit. There’s been a fair amount of debate as to what that will do to house prices: as with any economic shock, it might well hit the housing market.

What it probably won’t do, though, is make housing more affordable in the long term. As Shelter’s Pete Jefferys wrote last month, a house price crash will hit housebuilders too – and anything that makes them less likely to build is bad news.

Jonn Elledge is the editor of CityMetric. He is on Twitter, far too much, as @jonnelledge.

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