In the final part of this Nethouseprices series covering the recent Lloyds Bank Affordable Cities Review, we turn to those cities where residential property is least affordable. That there is a preponderance of southern cities in this league table isn't surprising: the South of England boasts the highest house prices in the UK, so it makes sense that property in the region's cities should be commensurately expensive. What we find genuinely startling, however, is the scale of the affordability issue in some of these locations. Consider Oxford - a home in that admittedly gorgeous old university city costs 10.7 times the average local annual earnings. Again, the relative absence of northern cities isn't, at least on the face of it, an especially striking finding, although we might have expected the pace at which property prices have risen in recent times in Manchester and Liverpool, for example, to have stretched affordability and even resulted in their being placed in the list of the top twenty least affordable areas. In this feature, we set out the details of the table and ask whether there are any reasonable prospects of a change in the status quo.
1. The headlines
To put the figures for the least affordable cities into perspective, we first list some of the headlines for the UK at large. Lloyds prepared the study using its own housing database and official Land Registry sold prices and Registers of Scotland data. Its information about wages comes from the Office for National Statistics:
- Average city house price rises have outpaced wages growth during the past five years.
- House prices in cities are now almost 6.9 times higher than average annual earnings, lower than the ratio of 7.2 reported back in 2008, but markedly higher than the ratio of 5.5 recorded just five years ago in 2012.
- Greater London has recovered the ground lost during and in the immediate aftermath of the global financial crisis. Property prices in the capital have, in fact, risen by an eye-watering 57 per cent since 2012.
- Stirling in Scotland is the most affordable city in the UK, with homes typically costing just 3.7 times the local average annual earnings.
- The cost of a house or flat in cities has risen by an average of 32 per cent since 2012. Earnings have increased by just seven per cent to £32,796 during the same period.
- The average cost of a house or apartment in a city was £169,966 in 2012. The current figure is £224,926.
2. Least affordable cities: the league table
1. Oxford, South East England: Price to earnings ratio = 10.7.
2. Greater London: Price to earnings ratio = 10.5.
3. Winchester, South East England: Price to earnings ratio = 10.5.
4. Cambridge, East Anglia: Price to earnings ratio = 10.3.
5. Chichester, South East England. Price to earnings ratio = 10.0.
6. Brighton and Hove, South East England: Price to earnings ratio = 9.6.
7. Bath, South West England: Price to earnings ratio = 9.3.
8. Southampton, South East England: Price to earnings ratio = 9.2.
9. Salisbury, South West England: Price to earnings ratio = 9.2.
10. Canterbury, South East England: Price to earnings ratio = 8.7.
11. St.Albans, South East England: Price to earnings ratio = 8.7.
12. Bristol, South West England: Price to earnings ratio = 8.7.
13. Lichfield, West Midlands: Price to earnings ratio = 8.3.
14. Truro, South West England: Price to earnings ratio = 8.2.
15. Norwich, East Anglia: Price to earnings ratio = 8.2.
16. Chelmsford, South East England: Price to earnings ratio = 7.9.
17. Exeter, South West England: Price to earnings ratio = 7.9.
18. York, Yorkshire and Humberside: Price to earnings ratio = 7.6.
19. Leicester, East Midlands: Price to earnings ratio = 7.6.
20. Gloucester, South West England: Price to earnings ratio = 7.2.
3. Nethouseprices view?
As highlighted above, the table provides stark evidence of the persistence of the North - South property price divide. True, such regions as the West and East Midlands and the North West of England are currently undergoing economic renaissances and, as one of the consequences, they are seeing some of the fastest rising house prices in the UK. But, as the dominance of southern cities in the top twenty demonstrates rather graphically, the property price and affordability gaps between these cities and their counterparts in the south have not narrowed to any appreciable degree.
Another important point is that the table adds an exclamation mark to the suggestion of many housing market observers that, among the other drivers of the faltering property prices in parts of the South of England - Brexit uncertainty, for example - affordability constraints represent a significant drag on the sector. Put simply, people can't afford to buy houses in these areas. Is the problem likely to be eased in the coming months? Well, several respected agencies have forecast a modest decline in prices in London and the South East during 2018, which would presumably help. Similarly, the government's abolition of Stamp Duty for first homes costing up to £300,000 was a policy which was expressly designed to make housing more affordable for first time buyers and is expected to be most helpful to young people in the southern portions of the UK. Finally, there are many affordable housing projects afoot which, when they come to fruition, will make the market far more accessible to lower income families. All of this being said, there are cogent arguments that the Stamp Duty intervention - and, indeed, the various help-to-buy schemes - might well stimulate prices, which would clearly exacerbate affordability problems.
On balance, we probably won't see much of a change in the short term, but there are real grounds for optimism that, in the medium and longer term, the problem of affordability in the South of England will be eased, if not entirely eradicated.
The team at Nethouseprices hopes that you found this series interesting. Visit us again soon for our coverage of house prices in the UK, the private rental sector and property investments.
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