1. Governance
January 26, 2016

Have Britain's houses really become less affordable over time?

By Joe Sarling

It is well-trodden ground that Britain’s house prices are high, that they have increased a lot over the last few decades, and that getting on the housing ladder has become more of a challenge than ever.

But precisely how difficult has it been for different generations to afford to buy a home? We crunched the numbers:

Click to expand.Source: Nationwide, MeasuringWorth, NLP analysis.

Here’s what we found.

Reflecting the myriad of factors influencing house prices, affordability has changed a lot over time

Back in the 1950s, ‘60s and ‘70s – a period of high housebuilding rates – an average house in the UK was valued at between four and five times average earnings.

The 1980s brought greater credit liberalisation – dual income mortgages and preferential tax arrangements – and fuelled the potential for viewing a house not just as a home but as an asset too. This meant that, in the new millennium, homes were valued at over seven times earnings.

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Events and policy changes over several decades accentuated the boom and bust swings

The peak before the crash in 1973 saw homes as 14 per cent less affordable than the long run average. When the market crashed to the bottom in 1977, homes became 14 per cent more affordable.

In turn, the peak in 1989 saw houses as 23 per cent less affordable, but they became 26 per cent more affordable at the bottom of the market in 1995.

However, the latest wave is the starkest. Before the 2008 financial crash, homes were 58 per cent less affordable compared to the long-run average. If we were to apply previous trends to this cycle, homes should have become significantly more affordable at the bottom of the market.

But they didn’t – when the housing market apparently “crashed”, homes were still 29 per cent less affordable than the long run average. Since then, they’ve crept back up to 43 per cent in 2014.

Did we actually see a full market correction? Or is unaffordability perhaps being driven by a hot market such as London?

“Generation U”?

These wild market swings impact on people’s ability to buy, depending on when they were born – and, of course, the degree to which they can access credit.

If we assume that, on average, someone would be looking to buy a home at age 25, the “Baby Boomer” generation would enter the market between 1971 and 1989 and, also on average, would see homes valued at around five times earnings. So-called “Generation X” would enter the market in the 1990s and would see homes around 4.5 times average annual earnings.

But “Generation Y” would come into the market in the new millennium; they see homes priced at over seven times earnings.

If we are not careful, housing could become so unaffordable that we end up creating a new, thoroughly unlucky, generation. Maybe “Generation U” would be most appropriate.

Joe Sarling is associate director of planning consultancy Nathanial Lichfield & Partners. This article was originally posted on the firm’s blog

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