1. Economics
March 21, 2017

There’s just one British city where houses are less affordable than London

By Jonn Elledge

The latest instalment of our weekly series, in which we use the Centre for Cities’ data tools to crunch some of the numbers on Europe’s cities.

The Office for National Statistics just released its latest house price index – and the good news is housing is finally becoming more affordable.

Psyche! Obviously, that’s not true and there’s no good news at all. The headlines are:

  • The average cost of a home bought by a first time buyers was £196,459 in January 2017, up from £185,057 a year earlier.
  • That’s a 6.7 per cent increase in a year.
  • No, obviously wages haven’t risen by 6.7 per cent in a year.
  • Yes, obviously prices are silliest in London, where the average price paid rose 7.5 per cent, from £399,779 in January last year to £429,666 in January this one.
  • To put that in context, with a 10 per cent deposit and a standard mortgage multiple of 4.5 times joint income, the average London could buying their first house would need a joint income of about £86,000 and another £43,000 in the bank.
  • We’re doomed.

In a statement, Shelter’s interim chief executive Graeme Brown said:

“The only way to fix the housing crisis is for the government to change the rules of the game completely, by bringing down the astronomical cost of land which would then allow us to deliver the genuinely affordable homes communities need.”

But at times like this it’s worth remembering that, while London may have the highest prices, it isn’t quite the least unaffordable place to buy a home.

The housing affordability ratio is calculated by dividing the average house price in an area by the average earnings: it’s basically a rough-and-ready way of gauging the average local’s chances of ever getting on the housing ladder without some sort of vast inheritance.

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On that measure, Oxford, with an affordability ratio of 16.73, is very slightly less affordable than London (16.65):

The 15 least affordable cities, compared to the national average. Image: Centre for Cities.

You may notice something about these cities. If you don’t, perhaps an interactive map will help:

Hover over a dot for more details.

Yep: with the exceptions of York and Exeter, they’re all London commuter towns. In other words, their house prices  aren’t just driven by wages paid in the cities themselves, but by those higher ones paid in the capital. Southend may not be a hub of industry in itself, but it’s a convenient train ride to the City.

Oh, and remember Graeme Brown’s point about land affordability? Here’s a map of the green belt. Compare it to the map of affordability ratios above.

England’s green belts. Image: Hellerick/Wikimedia Commons.

It’s also worth noting the numbers themselves. Every one of these 15 least affordable cities has an affordability ratio of over 9. Mortgage multiples are capped at 4.5, which means that two people both earning the average wage would still not be able to take out the mortgage required to buy the average home.

And this, remember, is a couple. How many cities are there where a single person earning the average wage could get a mortgage to buy the average home? That is – how many British cities have a housing affordability ratio of less than 4.5?

Answer: one. Step forward Burnley.

The 15 most affordable cities. Image: Centre for Cities.

Now I’m oversimplifying a bit here: first time buyers often don’t buy the average home, they buy smaller or cheaper ones, and then build up from there. Nonetheless, it’s hard to see this as good news for the nation, its young or their bank balances.

Oh yeah, and average prices climbed by 6.7 per cent last year. Terrific.

Jonn Elledge is the editor of CityMetric. He is on Twitter as @jonnelledge and also has a Facebook page now for some reason. 

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