By Saif Ullah, Researcher in the City of London Research Team
Last week (17/03/17), the Office for National Statistics (ONS) published a new set of data looking at housing affordability across local authorities in England and Wales from 1997 to 2016. This is the first time ONS has published housing affordability data, which looks at median and lower quartile house prices (based on Land Registry data on residential property transactions), and median and lower quartile gross annual earnings (based on data from the Annual Survey of Hours and Earnings). The housing affordability ratio is calculated by dividing house prices by annual earnings.
The data highlights the acute difference between annual earnings and house price growth across England, and particularly within local authorities in London. The first two charts below look at the difference between median house prices and median gross annual residence-based earnings for England and London between 2002 and 2016.
As the charts show, median gross annual residence-based earnings have remained relatively flat over the course of the period in comparison to median house prices. Looking at the data for England, median house prices have increased by 108% since 2002, reaching a median cost of £220k in Q3 2016. Gross annual earnings at a residential level, however, have grown at a far slower pace, increasing by 37% to £28.5k by Q3 2016. This change is reflected in the ratio of median house price to median gross annual residence-based earnings, which has increased from 5.11 in 2002 to 7.72.
The growing discrepancy between median house prices and earnings is even more pronounced at the London level. Across the period, median house prices have risen by 150%, reaching 435,000 in 2016, while median gross annual earnings at the residential level have increased by only 34% in comparison, reaching just under £34k. As a result, the housing affordability ratio has nearly doubled in London, increasing from 6.90 in 2002 to 12.88 in 2016.
A similar pattern across England and London can be observed when looking at lower quartile house prices and earnings (i.e. the point below which 25% of houses/annual earnings are lower), as illustrated in the chart below.
Lower quartile house prices vs lower earnings 2002-16
Lower quartile house prices in England and London increased by 116% and 154% respectively across the period, with lower quartile house prices in London reaching £325k in 2016. The rise in lower quartile house prices in London has been particularly steep over the last three years, with an average increase of £30k per annum. Lower quartile gross annual wages, meanwhile, have increased by only 36% across England, and by 27% in London. London’s housing affordability ratio for lower quartile houses to residence-based earnings is 13.52 in 2016, nearly twice the level of England’s as a whole (7.16).
How does housing affordability look at the local authority level in London? The final charts look at how the ratio of house price to gross annual earnings across London authorities have changed since 2002, both in terms of median and lower quartile house prices to earnings.
Unsurprisingly, Kensington and Chelsea is the least affordable place to buy a property in London, with the highest ratio of median house prices to annual residence-based earnings for 2016. Kensington and Chelsea’s level of housing affordability increased by nearly three times its level in 2002. In most boroughs, housing affordability has significantly increased over the period, with Westminster (22.78), Hammersmith and Fulham (19.32) and Camden (18.59) among the most unaffordable areas. Bexley (9.37) ranks as the most affordable London local authority and experienced the smallest increase in its housing affordability ratio. Averaging out levels of affordability between inner and outer London, outer London boroughs tended to be more affordable (12.32) than their inner London counterparts (16.96).
The trends are very similar for lower quartile house prices and earnings. Kensington and Chelsea once again ranks as the least affordable local authority in London (26.41) in terms of lower quartile house prices to annual earnings, followed by Westminster (22.40), Camden (20.08) and Hammersmith and Fulham (19.08). At the other end, Bexley (10.40) and Barking and Dagenham (10.72) are the most affordable London local authorities. Outer London (13.15) boroughs again on this measure are more affordable than inner London ones (17.47).
Overall, the new data presents some useful insights into the housing challenges facing London, and the UK more widely. It is clear that gross annual earnings in most regions have not risen anywhere near as fast as house prices over the last 10 years, with housing becoming particularly unaffordable in London. More worryingly, housing affordability at the lower end of the spectrum has worsened nearly as fast as the median level, with the least affordable boroughs now seeing house prices over 20 times the level of residential-based wages. Commitments to increase housing supply may help to alleviate affordability issues in the coming years, particularly if targeted at individuals and families struggling to get on the housing ladder.