So this brings us to that perennial issue, house prices. Are they too high? Have they recovered from the 2008 crash? Is it impossible for young people to buy their first house? etc, etc. This was the premise of an article in The Telegraph in relation to The Archers then storyline about Roy Tucker’s search for a house to buy in Ambridge. As we shall see, the valuations of the properties may still be about right, given the drop in house prices in rural England since it was published in 2007.
Unaffordable housing – a new phenomenon?
We’re told we now live with Generation Rent, with the average age of a first time buyer well into their 30s. Why? Is it because homes are now completely unaffordable? Not like the past, when they were within everyone’s reach?
I was recently alerted to statistics published by Nationwide Building Society. Now, these statistics published by Nationwide are new to me; and when I saw what they offered I was intrigued. If they can be trusted, they give us an insight into answers to all of the above! All of their tables are interesting and you can download them here.
If, like me, you have an interest in raw changes in house price since the 1950s you should download this table. In this blog I’m focusing on affordability, though, and how it has varied over time; also, on how it varies geographically. My personal knowledge of house price variation goes back to 1970, but the affordability stats
only start in 1983, so that’s what we’ll work with.
So, are we currently in a unique period of unaffordable housing? Overall, UK wide, the stats say no - we’ve had periods of unaffordability before now. In the early 1970s, house hunting during what I think may have been only the second boom in house prices in the UK, I personally experienced the doubling of prices in less than a year. Nationwide’s First Time Buyers “house price to mean gross earnings” tables show a number of peaks in this ratio, since their stats start in 1983.
If you’re one of those folk whose eyes glaze over when faced with figures, you may want to look away now, and return to the blog at the foot of the page - headlined Moral of the story. But I promise you though, it’s worth staying with it, as it’s only through understanding the numbers that we get to the truth.
Variation over time (since 1983)
The first peak, of 3.9, occurred in quarter 2 of 1989. Any follower of politics will be aware of the government’s mistakes that fueled that particular boom in house prices. A figure of 3.9 means that the price of an average house would be 3.9 times the average annual salary. For example, if the average salary was then £25,000, the average price of houses being sold was just under £100,000.
Affordability improved after that throughout the first half of the 1990s, with a low of 2.1 in 1995. This low was largely due to the 1990s house price crash, as a result of the mistakes that created the artificial boom in 1989, and which put many home-owners into negative equity.
The ratio then started to creep back up, as homebuyers’ confidence improved with the new government in charge, reaching 2.9 in 2000. It did not get back to 3.9 until 2003, nearly 15 years later. From then, affordability continued to worsen, reaching a high of 5.4 in 2007 - clearly a situation that was much worse than the previous high in 1989. (This is an interesting period for house prices, with lots going in, all of it outside the scope of this blog.. but if you’re interested let me know and I’ll aim to cover it another time.)
Then came the 2008 international banking crisis, and affordability improved as house prices crashed again. By 2013 it had improved to 4.3 before starting to rise again, and the most recent Nationwide figures give it as 5.3 in 2016 Quarter 2.
So, in the 80s and 90s we saw a low of 2.1 and a high of 3.9; in the current century we have a low of 2.9 and a high of 5.4. In 2015 we were approaching that high again, with a ratio of 5.3, and it certainly looked as though the overall situation was worse than in the latter decades of the last century.
But, is this experienced in all the UK regions?
Variation by region (since 1983)
The short answer is no, the regions don’t follow this pattern. In fact, there are only three regions where homes are less affordable than in 2007 – and also, these regions are very much less affordable than in 1989. Not surprisingly, these three regions centre on London.
Taking London as the worst case, the figures are 1988 : 5.8 (the 1989 figure was slightly less at 5.7 - trends always start in London!); 2007 : 7.2; 2016 : 10.4 and still rising. Clearly this represents a very much worse situation than the late 1980s, previously the worst time to be a first time buyer. However, dig a bit deeper and we see the London factor skewing the figures for the rest of the UK.
Looking at a couple of regions at the opposite end of the range, where homes are more affordable now than in either of those peaks, we start with:
Yorkshire/Humberside; here the current (2016) affordability ratio is 3.7, compared to a high of 4 in 1989.
In the Northern region, 2016’s figure is 3.4 (down slightly from 3.5 in 2015), and 1989 was higher at 3.7.
Other regions, including the West Midlands, Wales and Scotland, are a little less affordable than in 1989, although they are still more affordable than they were in 2007. To give a couple of examples of this, let’s take firstly:
Wales - 1989 high of 3.6, 2007 high of 5.2, and the recent high of 4.2 in 2014, dropping to 4.0 in quarter 2 of 2016. In contrast to London, where homes continue to become less affordable, Wales appears to be improving.
Secondly, the area where we believe Ambridge is located:
West Midlands - 1989 high of 3.9, 2007 high of 5.0, and the current high of 4.7 in 2016. A much smaller improvement in affordability than in Wales, but still not as bad as it was in 2007.
Moral of the story?
If you want to buy a home rather than rent, consider moving to Wales or Yorkshire? Both are lovely places to live and work, although for some jobs in Wales, you will have to learn Welsh. Speaking Yorkshire isn’t compulsory in my home county. In particular, don’t believe claims that house prices are unaffordable to first time buyers throughout the UK.
Certainly they appear impossibly high in the South East: in London, Outer London Met, and Outer London SE. Everywhere else though, the situation is not as bad as it was 10 years ago, and in the North of England it is BETTER than 25 years ago. I think this is fascinating, and it makes you wonder what is really at the heart of the Generation Rent problem. Is it more about lack of mortgages, or the availability and ease of access to private rental properties, than over-steep house prices? Or perhaps it’s just that the South East of England is where all the broadcasters and national journalists live and work. Any thoughts?
So, back to Ambridge.
As the figures show, house-buyers looking for a more affordable region – at least, compared to 8 years ago - might like to try their luck buying in Ambridge. If prices in that region are supposed to be more affordable than they were, could Caroline and Oliver’s problems selling Grange Farm simply be due to asking too high a price? Some press reports have suggested that sales of properties at the top end of the market have declined this year, and fewer buyers usually leads to lowered prices.
To generalise, anything will sell quickly if it’s offered to the market at the right price; assessing that price, deciding if you want a quick sale or not, and pricing accordingly, is critical to a good experience when selling property.
Caroline and Oliver also made the mistake of carrying out remedial work in the garden (tree removal) without getting advice from a surveyor first. If they’d done that, I think they may have been warned that removing a tree so close to a house can cause more damage than leaving well alone. When a tree dies, its roots also die and rot, and the spaces left behind will collapse under the weight of soil above, possibly compromising the foundations of buildings close by.
Finally, they allowed their tenants, the Grundies, to stay in place while showing the property to viewers; an act of kindness, but not particularly helpful to the sale. In fact, they did just about everything wrong, if their aim was a quick sale at a high price. Still, with Oliver making the right decision for the Grundies in the end, everyone appears to be happy, except perhaps Caroline. Oh, and Wills was always going to moan about his situation, wasn’t he, whatever happened? Now it will be about his family putting him to all the trouble of having to find a new tenant!
Well, you can’t please everyone, can you.