The UK housing market has never been so topical. Everyday, there is an article in the media about potential price rises, price slowdowns, mortgage rates, affordability and buy-to-let, to name but a few.
But in order to separate media-hype from reality, I’d like to draw your attention to four key charts. Some findings will reinforce existing narratives; others will come as a surprise.
Firstly, and most obviously, we have a clear cultural desire to be home owners. In 2012, 64 per cent of dwellings were owner-occupied – although this is down from a high of 70 per cent in 2002. This, in turn, will put pressure on the types of homes available to live in across the tenures. For example, almost nine-in-ten detached homes and seven-in-ten semi-detached homes are owner-occupied, while only a quarter of flats are.
This means renters are overwhelmingly housed in flats. This is particularly important for future housing delivery and has been debated in the recent past. As housing minister Brandon Lewis alludes to, are we building the right homes in the right places at the right prices?
Ownership rates of different housing types. The smaller the bar, the larger the proportion that’s rented. Source: ONS, NLP analysis.
One of key reasons that home ownership is popular is the potential capital appreciation that can be gained. People feel this investment is, well, “safe as houses”, and are willing to view it as a saving or pension option – particularly today, as interest rates are at historic lows.
However, the house price gain across the UK is particularly uneven. Since 2008, nominal house prices in the UK as a whole are now 15 per cent above the pre-crash peak – a relatively small but still significant rise.
But house prices in London are up over 40 per cent since the peak. And to show how much London drives the average up, UK house prices excluding the capital are only up 7 per cent. The London market is hot right now, driven by both domestic and global demand.
Nominal house price since the peak in 2008. Source: ONS, NLP analysis.
This situation also puts pressure on the rental market. Contrary to popular belief, rental price (based on ONS’s experimental dataset) and earnings broadly rise together at the same rate. This should hardly be surprising: as rent is set by what people can afford to pay and there isn’t a credit facility, unlike with mortgage purchases. In fact, from 2008 to 2011, earnings were rising at a faster rate than rent.
However, while this trend continued in England, rent price and earnings appear to have decoupled in London. How long will this last and what will it take to correct it?
Rent price and earnings in England and London. Source: ONS, VOA, NLP analysis.
These changes have meant home ownership across the age groups in England has diverged, too. As a result of a combination of factors –our ageing population, price changes, the tightening of credit after the financial crash, other economic and labour market factors – home ownership within the groups of under 34 year olds has plummeted. While those aged 16-24 and 25-34 have seen proportional decreases, of 5 and 16 percentage points respectively, only those groups aged 65 or over have seen increases.
Home ownership rates by age group. Source: ONS, NLP analysis.
So what does this tell us? It certainly supports the narrative that London is a different world to the rest of the country, both for renters and potential buyers. This could have knock-on effects for the local economy – will young people and professionals be able to afford to live and work in the capital? – and on society – if more people head to the south east for work but we don’t increase supply, what will their living conditions be like?
But there may be a wider issue here. The trends have shown that while we are still a nation of home owners, this proportion has recently decreased. And as we live longer without building enough new homes, people are increasingly renting. Perhaps the market is shifting.
If so, are we building the right types of rental properties across the country for a different type of tenant? If those aged under 34 own proportionally fewer homes, perhaps our rental market needs a different offer – one that isn’t simply flats.
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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