The sustained rise in property prices and average rents has caused housing affordability in the UK to worsen considerably in recent years.
Data published in May 2018 by the Office for National Statistics found that, on average, people in full-time jobs could expect to pay around 7.8 times their annual earnings on purchasing a home in England and Wales in 2017.
The affordability issue is even worse for those wanting to buy a new home. In 2017, full-time employees in England and Wales could expect to spend 9.7 times their median gross annual earnings on purchasing a newly-built property. Affordability is better in regions such as the North West of England but in Kensington and Chelsea, median house prices are estimated to be 40 times median annual earnings. For many people, being able to afford a mortgage has become almost impossible.
The average age of first time buyers has risen and many more people now are required to rent property because of a lack of effective demand for would-be home-buyers. The term “Generation Rent” refers to a cohort of people who, unlike the baby boomer generation are unlikely ever to be able to afford to buy or who will have to wait until much later in their life to become owner-occupiers.
Data from the Resolution Foundation found that since 2000, house prices have risen more than 250 per cent in the UK, greatly outpacing earnings which have grown by just 68 per cent over the same period of time. 1.8 million families with children now rent property. 35 per cent of new purchasers had help from family or friends with a deposit in 2017, and 1 person in 10 used an inheritance to fund the deposit.
Research from PriceWaterhouseCoopers found that "as the price of owning a home rises, 7.2 million households will be in rented accommodation by 2025, compared with 5.4m now and 2.3m in 2001."
Renting too has become more expensive both for properties available at market rents and also affordable housing which need only offer rents which are 80 per cent or less of the prevailing market rate.
When house prices and rents rise as quickly as they have, there are major distributional consequences for millions of families. The Uk housing market is widely regarded as suffering from multiple market failures which create growing inequalities of wealth and act as a barrier to labour mobility.
© 2021 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.