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Richard Donnell's slides from Resolution Foundation event on housing affordability Full details at http://www.resolutionfoundation.org/events/home-truths-scale-britains-housing-crisis-and-how-/ #hometruths
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Wider context for housing affordability
Home Truths Richard Donnell, Research Director, 16 May 2013
#hometruths
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
© Hometrack 2013
Low turnover creates scarcity and supports house prices
Source: Hometrack
0%
2%
4%
6%
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10%
12%19
60
1964
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rno
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rate
of
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% p
a
> 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
© 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
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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
© Hometrack 2013
Lower quartile price of a 2 bed home is lower …
Source: Hometrack
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£50,000
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N W
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2 b
ed
pro
pe
rty
low
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qu
art
ile p
ric
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Peak Current-2%
-4%
-10% -9%
-10% -10% -14% -15% -18%
#hometruths
6
© Hometrack 2013
… but higher deposit requirements offset lower prices
Source: Hometrack
£0
£5,000
£10,000
£15,000
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ids
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Y&
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Ave
rag
e d
ep
osi
t re
qu
ired
to b
uy Peak Current
#hometruths
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© Hometrack 2013
Pressure on private rental market
Source: Hometrack
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Q1
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2013
Q1
Ren
t p
er c
alen
dar
mo
nth
(2
bed
)
LondonSouth EastRest 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
© Hometrack 2013
Affordability – renting v buying
£0
£50
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E M
ids
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est
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W M
ids
Y &
H's
ide
Ho
us
ing
co
sts
£p
w (
2 b
ed
)
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
© Hometrack 2013
What incomes/products work in which markets ?
£0
£10,000
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ids
Y &
Hu
mb
er
E M
ids
N W
est
N E
ast
Inc
om
e r
eq
uir
ed
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
© 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
© Hometrack 2013April 11, 2023
Hometrack6th Floor, The ChambersChelsea HarbourLondonSW10 0XF
www.hometrack.co.uk
Home Truths: the scale of Britain’s housing crisis and how to fix it
Vidhya AlakesonRichard DonnellNatalie Elphicke
Keith ExfordCampbell Robb
Jules Birch
@resfoundation
……………………………………………………………………………………………………..
#hometruths