Affordability in housing – the stats say ‘no’

By Dawn Robinson, aided by Jeremy Walsh:

Time is short, so I asked my son to look at the ONS (Office for National Statistics) website report on housing and to report back.

So, after reading in the Telegraph about huge price rises in housing in many parts of Cornwall (Rock and Polzeath fine examples, but Rob Colwill mentions people are looking to other areas like Bude) I wondered about local affordability compared to earnings, just as the ONS sent out info on this very issue. I hear of so many people who cannot afford a house in Bude. I hear of prices going through the roof, sales rocketing, and if a sale falls through, the properties are then selling for more. It doesn’t sound great for local people wanting to get onto the housing ladder. But is this just a gut feeling or do the statistics back it up?

It seems the ratio of median price paid for residential property to median workplace annual earnings has been consistent over the last 9 years, but generally higher than the national average excluding 2017. (4.4% above national average in 2020). It is worth noting that in the ONS stats, income is compared to house prices for full time workers, which in Cornwall may be  rarer than other areas, making this measure of housing affordability flawed.

Cornwall’s 2020 ratio of house prices being 9.21 x average full-time worker earnings is middle of the road for the South West.

The gap between most unaffordable areas and most affordable areas is growing, so highest house prices/earnings minus lowest house prices/earnings is growing -no surprises there. The number was 9.88 in 1997 and 33.82 in 2020, so the gap between most affordable and least affordable places has grown more than 3 fold (UK wide).

Monam / Pixabay

There is no regional data, but in England newly built houses price/earnings 27% higher than for existing dwellings. 44% higher for Wales. We imagine the specifics for Cornwall would be somewhere in the middle (but there is no data).

The median house price for newly built dwellings in South West increased by 199% (that is they are at 299% in 2020 of what they were in 1997). According to the Bank of England inflation calculator, inflation over this period was 86%. The median house price for existing dwellings increased by 236% over same period (336% in 2020  what they were in 1997).

Surprisingly, the earnings of full time workers in South West is higher than the North East, Yorkshire and Humber, East Midlands, West Midlands, and  Wales, though we presume the South West has more seasonal workers than say, the West Midlands and this is based on full time worker income If this is the top level data the government is looking at, they will not have an accurate picture of the regional problems in the country, as there is an awful lot of data missing and presuming.

Lower quartile house price for existing dwellings (which are cheaper than new ones) in the South West for 2020 was £189,500, which is only lower than “east”, London, and the South East. This suggests that lower end affordable housing in the South West isn’t prevalent despite what affordability ratios may suggest. The effect of expensive second homes or something similar should not skew the data much due to the nature of the average used (median over mean).

Applying the “affordability” ratio for Cornwall of 9.21, the lower quartile house price divided by 9.21 gives an annual full time worker salary of 20.5k.
This isn’t necessarily a statistically sound thing to do as the distribution of full time earnings and house prices will be different but it gives some idea
of how affordable lower quartile housing is in the South West.

Put basically, cheap housing in South West that was affordable back in 1997, is less so now. What is the answer for first time home buyers?

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