October 2017

6 min read

Undersupplied? Or simply overpriced?

October 2017 was a month in which the Government made a number of weighty statements about the chronic failings in the UK housing market and outlined possible remedies to address them. One of the main issues identified was the undersupply of fresh housing stock. The Secretary of State for Communities and Local Government, Sajid Javid, stated: "There is an urgent need to build 300,000 new homes a year". The challenge as always is how to deliver on this pledge.

In November 2013, the then London Mayor, Boris Johnson, pledged to build 42,000 new homes in London, a target that has yet to be achieved and for which Johnson has faced much criticism over the last week by his successor, Sadiq Khan. Khan, however, has his own work cut out: he has pledged a hugely ambitious 50-50 plan: 50,000 new homes a year with 50 per cent of those to be affordable).

London new homes built data hasn't been available since April 2012 when Boris Johnson, then Mayor of London, took up oversight of strategic housing, regeneration and economic development in London. This means that the HCA no longer publishes housing starts on site and completions for London, except where the HCA is administering a programme on behalf of the GLA.

The 2015 Conservative Party election manifesto contained a pledge from then Prime Minster David Cameron to "build 200,000 quality Starter Homes over the course of the next Parliament, reserved for first-time buyers under 40 and sold at 20 per cent below the market price". With the total number of completed affordable homes for 2015-16 standing at 32,630* the likelihood of the current Conservative Government achieving this goal looks highly unlikely.
* Source: Department for Communities and Local Government: Affordable housing supply statistics (AHS) 2015-16

The question is whether the housing crisis entirely the fault of the undersupply of new housing stock or if there are other factors to consider. To this end, we examine:

  • Changes in average house prices and sales volumes
  • Supply and demand from NAEA
  • Average weekly earnings from ONS
  • Lending on dwellings data from Bank of England

Changes in Average House Prices

Source: UK House Price Index - Latest data August 2017

Average sale prices in England & Wales rose to their highest level ever, reaching £237,953, up 5.2% on last year. However, year-on-year annual average house price growth is slowing: August 2016 saw an increase of 7%.

London's prices on the other hand showed a month-on-month fall of 1% to £484,362, however they were up 2.63% year-on-year. Once again the annual increase for 2016/17 was less than for 2015/16 when it was 8.2%.

Average house prices are starting to slow and will continue to do so whilst the overall sales volume fall.

Regional Differences in Average House Price data

Source: UK House Price Index - Compare Aug 2017 to Aug 2016

  • London - £484,362 - Increase of 2.63%
  • South East - £324,983 - Increase of 4.84%
  • South West - £251,984 - Increase of 6.4%
  • East Midlands - £172,647 - Increase of 5.78%
  • West Midlands - £178,958 - Increase of 6.61%
  • Wales - £145,382 - Increase of 3.36%
  • East of England - £271,147 - Increase of 10.88%
  • North East - £126,114 - Increase of 2.02%
  • North West - £150,172 - Increase of 5.41%
  • Yorks and Humber - £151,485 - Increase of 4.25%

Changes in Sales Volumes

Source: UK House Price Index - Latest data June 2017

Sales volumes in England and Wales and London have been on the decline since the change to the stamp duty rules for second home purchases, with the exception of a small resurgence in April 2017. The latest data for England and Wales, however, shows another annual fall of 10.4% to 69,949 sales for June 2017. This is the lowest activity for June since 2013 (68,687).

The story is worse in London with only 6,768 sales in June 2017 (down 20% on June 2016), the worst June since 2009 (6,001). It is clear why the London Mayor, Sadiq Khan, is focusing on building more homes as it is clear that the number of Londoners getting onto the housing ladder is declining. Undersupply, a huge factor in sustaining the current record average sale prices in London, is clearly keeping an ever-increasing number of Londoners from buying.

NAEA - More properties, but housing demand at all time low

The National Association of Estate Agents (NAEA) latest report states (August 2017):

  • Number of house hunters registered at estate agents dropped to a 12 month low, with 343 per branch on average in Aug 2017 (down from 384 in June).
  • Number of properties available to buy increased from 35 in July, to 37 in August.
  • The proportion of sales made to First Time Buyer remained at 23% in August, having fallen from 30% in June.

The summer months can affect the demand for properties as Mark Hayward, Chief Executive of the NAEA confirms, "We shouldn’t take August’s decline as a sign of things to come – we’ll see the market bounce back in September and ramp up towards the end of the year as house buyers desperately try to complete transactions before Christmas."

Average weekly earnings lower than inflation

Source: Office for National Statistics - Latest data Aug 2017

Average weekly earnings are up year-on-year by 2.2% to £505 (£26,260 per year) which is lower than August 2017's inflation level (Consumer Price Index/CPI) of 2.9%. Average earnings growth not keeping pace with average house price rises is a critical factor in the UK's housing market woes: first time buyers, in particular, are simply finding it increasingly difficult to buy properties.

What is the problem In January 2001 the average house price in England/Wales was £82,636 and the average annual salary was £16,848. In August 2017 average house prices have risen to £237,953, an increase of 288%, however average earnings only increased to £26,260, an increase of 156%.


Mortgage lending on dwellings is up

Source: Bank of England - Latest data Sept 2017

The number of loans agreed on house purchases increased year-on-year by 3.1% to 66,232. The concern for the housing market is that ever larger number of home owners are not selling their homes and moving; they are looking to remortgage in preference to take advantage of the currently low mortgage rates, particularly given the soundings from the Bank of England about a possible coming rate rise. Most experts believe this is imminent and will most likely occur before the end of the year. Remortgage approvals were up 9.5% to 47,598.

When home owners don't move, first time buyers have fewer properties to buy. The issue is exacerbated if a high number of second home movers stay put as they could be selling their properties, which should still be affordable, to first time buyers. Third home movers normally own a property that is too expensive for a first time buyer, however it is a similar issue as affordable third homes are needed for second home movers to move to.

Andrew Boast, Co-founder of SAM Conveyancing, said:" Building new homes is a critical part of the housing market, however the Government is struggling to deliver their new home pledges which will keep more first time buyers off the housing ladder."

"Average house prices have been marching upwards throughout 2017 which is creating a barrier for buyers as they are unable to afford current asking prices. Salaries are growing, but have never been able to keep up with average house price increases."

"It is clear to see why the Government needs to deliver on its affordable housing schemes because first time buyers are currently being priced out of the housing market. Without first time buyers more home owners will stay looking for the cheapest mortgage deals and the housing market could slow even further."

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