More Related Content Similar to Home Truths: Wider context for housing affordability (20) More from ResolutionFoundation (20) Home Truths: Wider context for housing affordability1. Wider context for housing affordability
Home Truths
Richard Donnell, Research Director, 16 May 2013
#hometruths
2. 2
© Hometrack 2013
Overview
> Affordability debate starts with the price of private housing and the cost of accessing it
> No major re-correction in house prices
> Pressure on rental markets
> Impact of government schemes to stimulate demand
> Local solutions for local housing markets
> Summary
#hometruths
3. 3
© Hometrack 2013
Low turnover creates scarcity and supports house prices
Source: Hometrack
0%
2%
4%
6%
8%
10%
12% 1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
2016
Turnoverrateofprivatehousing%pa
> Low churn creates scarcity and
supports prices
> Historically low turnover currently at
just 4% – a move every 25 years
> Exacerbated by cost of moving and
low inflation
> New housing completions well below
household growth rates add to
scarcity
> 43% sales in 2012 were cash buyers
or BTL investors
#hometruths
4. 4
© Hometrack 2013
Low mortgage rates support pricing for existing owners
Source: Hometrack - Note: Implied house price is what could be bought using 35% net income to meet mortgage repayments at
prevailing LTV and average mortgage rate over time
£0
£50,000
£100,000
£150,000
£200,000
£250,000
1976 1983 1991 1998 2006 2013
Actual house price UK
Implied house price
> Comparison of actual house
prices against implied house price
> Clear disconnect between actual
and implied prices in late 1980s
and mid 2000s.
> Support from lower interest rates
clear over 2008-date.
> Implied prices very sensitive to
changes in mortgage rates
#hometruths
5. 5
© Hometrack 2013
Lower quartile price of a 2 bed home is lower …
Source: Hometrack
£0
£50,000
£100,000
£150,000
£200,000
£250,000
London
SEast
SWest
East
WMids
EMids
Y&H
NWest
NEast
2bedpropertylowerquartileprice
Peak Current
-2%
-4%
-10% -9%
-10% -10% -14% -15% -18%
#hometruths
6. 6
© Hometrack 2013
… but higher deposit requirements offset lower prices
Source: Hometrack
£0
£5,000
£10,000
£15,000
£20,000
£25,000
£30,000
£35,000
£40,000
£45,000
London
SEast
SWest
East
WMids
EMids
Y&H
NWest
NEast
Averagedepositrequiredtobuy
Peak Current
#hometruths
7. 7
© Hometrack 2013
Pressure on private rental market
Source: Hometrack
£0
£200
£400
£600
£800
£1,000
£1,200
£1,400
£1,600
£1,800
£2,000
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
2012Q3
2013Q1
Rentpercalendarmonth(2bed)
London
South East
Rest of GB
> Two rental markets – one
in London and rest of UK
> Rental growth outside
London has been limited
averaging 1.5% pa
> Rents doing well to rise
given pressure on
household incomes
> Drivers of affordability
more complex than buying
due to impact of occupancy
#hometruths
8. 8
© Hometrack 2013
Affordability – renting v buying
£0
£50
£100
£150
£200
£250
£300
£350
£400
£450
EMids
East
London
NEast
NWest
SEast
SWest
WMids
Y&H'side
Housingcosts£pw(2bed)
Rent
Buy 80% LTV @3.75%
Buy 95% LTV @4%
Source: Hometrack
> Rental costs per week are 20%
higher than the cost of buying
with an 80% LTV mortgage
> Shift to 95% LTV at 4%
borrowing under Help to Buy and
renting is on a par with buying –
very optimistic assumption on
mortgage rate
> Too many unknowns on the
details of the Help to Buy MIG
and flows into re-mortgaging
versus home purchase
#hometruths
9. 9
© Hometrack 2013
What incomes/products work in which markets ?
£0
£10,000
£20,000
£30,000
£40,000
£50,000
£60,000
£70,000
£80,000
London
SEast
East
SWest
WMids
Y&Humber
EMids
NWest
NEast
Incomerequired
Buy outright
Private rent
Affordable rent (63% OMRV)
LCHO 35% initial sale
Source: Hometrack
> Establish incomes to afford
different tenures
> Make sure there is a market for
the housing tenure/product
> Understand the choices for
households
> Ensure strategies are tailored to
market/affordability dynamics
#hometruths
10. 10
© Hometrack 2013
Summary
> No end in sight to level of capital values
> Banks still de-leveraging balance sheets – strong political pressure to lend
> Occupancy dynamics differ between renting and buying
> Impact of Help to Buy uncertain
> Solutions need to come from local housing markets and their dynamics
#hometruths
11. 11
© Hometrack 2013May 21, 2013
Hometrack
6th Floor, The Chambers
Chelsea Harbour
London
SW10 0XF
enquiries@hometrack.co.uk
www.hometrack.co.uk
12. Home Truths: the scale of Britain’s
housing crisis and how to fix it
Vidhya Alakeson
Richard Donnell
Natalie Elphicke
Keith Exford
Campbell Robb
Jules Birch
@resfoundation
……………………………………………………………………………………………………..
#hometruths