Affordability of housing in the United Kingdom

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Affordability of housing in the UK reflects the ability to rent or buy property. Housing tenure in the UK has the following main types: Owner-occupied; Private Rented Sector (PRS); and Social Rented Sector (SRS).[1] The affordability of housing in the UK varies widely on a regional basis – house prices and rents will differ as a result of market factors such as the state of the local economy, transport links and the supply of housing. For owner-occupied property key determinants of affordability are: house prices; income; interest rates; and purchase costs. For rented property, PRS rents will largely be a reflection of house prices, while SRS rents are set by Local Authorities, Housing Associations or similar on the basis of what lower income groups can afford.[citation needed][vague][clarification needed]

House prices

Land Registry figures[when?] for England and Wales show that house prices tripled[clarification needed][quantify] in the 20 years between 1995 and 2015. Growth was almost continuous during the period, save for a two-year period of decline around 2008 as a result of the banking crisis.[2]

House price averages compared to average salary

United Kingdom housing affordability as described by mortgage payments as a percentage of take home pay from 1983 to 2015
United Kingdom housing affordability as described by house price to earnings ratio from 1984 to 2015

The gap between average income and average house prices has changed between 1985 to 2015 from twice an average salary to up to six times average income, in the least expensive areas of England and Wales.[weasel words] Median house prices in London the median house now cost up to 12 times the median London salary.[citation needed]

In London in 1995, the median income was £19,000 and the median house price was £83,000, 4.4 times median income. By 2012-13, the median income in London had increased to £24,600 and the median London house price had increased to £300,000, 12.2 times median income [3]

In 1995 the Bank Base Rate was 6%, in March 2009 it stood at 0.5% until August 2016 when it was further reduced to 0.25%.[4]

Impact of planning restrictions on house prices

A house for semi-detached house in London zone 5 (Croydon)

Some economists and pressure groups such as Shelter argue[peacock term] that planning restrictions are a factor behind the rise in prices as up to 70% of the cost of building new houses is the purchase of the land (up from 25% in the late 1950s).[citation needed]

An analysis by the LSE and the CPB[expand acronym] Netherlands Bureau for Economic Policy Analysis found that house prices in England would have been 35% cheaper without regulatory constraints.[5] A report by the Adam Smith Institute found that by using 4% of London's green belt, one million homes could be built within 10 minutes walk of a railway station.[6][jargon]

The Economist has criticised green belt policy, saying that unless more houses are built through reforming planning laws and releasing green belt land, then housing space will need to be rationed out. It noted that if general inflation had risen as fast as housing prices had since 1971, a chicken would cost £51; and that Britain is "building less homes today than at any point since the 1920s".[7] According to the independent Institute of Economic Affairs, there is "overwhelming empirical evidence that planning restrictions have a substantial impact on housing costs" and are the main reason why housing was two and a half times more expensive in 2011 than it was in 1975.[8][jargon]

The Campaign to Protect Rural England argued that "Green Belt land is important for our wider environment, providing us with the trees and the undeveloped land which reduce the effect of the heat generated by big cities. Instead of reducing this green space, we should be using it to its best effect. We know from our research that three quarters (79%) of the population would like to see more trees planted and more food grown in the areas around towns and cities."[9]

Valuation of land and impact on house prices

Value of land and buildings in the UK from 1995 to 2016 (trillions).[10]

Property companies state that land values follow house prices and that a developer assesses what new build house price is achievable in any particular location with reference to prices and sales rates in the second hand market and on nearby comparable new build sites. At a basic level (assuming no affordable housing, S106 or CIL), they then multiply that new build house price by the number of homes to be built on the land and to arrive at the gross development value (GDV) of the site. The underlying value of the land is then the GDV less the cost of development and less an allowance for profit.[11]

Property costs

The principal taxes imposed by central government are Stamp Duty and Value Added Tax (VAT). Other costs which are associated with the buying and selling of property are estate agent fees, conveyancing and survey fees, mortgage arrangement fees (where applicable), and removal costs.[citation needed]

Stamp Duty Land Tax

Stamp Duty Land Tax is payable by the buyer of a property as a percentage of the purchase price.

From December 2014, Stamp Duty was changed to a graduated system which eliminates the jumps in stamp duty at the threshold values. For instance a property of £600,000 under the old system would pay 4% tax of the whole asking price i.e. £24,000. Under the new system no tax is paid on the first £125,000, the next £125-250,000 is charged at 2% i.e. £2500 plus the portion (£350,000) in the £250,000-£925,000 tax band at 5% i.e. £17,500. This gives a total tax of £20,000. This change was said to be beneficial to 98% of property purchases[12] but caused a collapse in sales at the upper end of the market.[13][14][15][16]

Purchase price of property Rate of SDLT on portion of purchase price
£0 - £125,000 0%
£125,001 to £250,000 2%
£250,001 to £925,000 5%
£925,001 to £1,500,000 10%
over £1,500,000 12%

Estate Agent fees

In 2011, Which? magazine found the national average estate agents fees to be 1.8%.[17]

Survey

There are four main types of survey: a valuation survey, a condition report, a homebuyer report and a full structural survey.[18]

Legal fees

Conveyancing fees vary according to the value of the property and the service provided.[19]

Mortgage arrangement fees

In April 2013, The Daily Telegraph reported that research by Moneyfacts showed the average mortgage arrangement fee to be £1522.[20]

Rented homes

The English Housing Survey Bulletin 13[21] states that in 2013/14 there were 4.4 million households in the private rented sector and 3.9 million households in the social rented sector, of whom 2.3 million households (10%) were renting from a housing association and 1.6 million (7%) were renting from a local authority.[jargon][neutrality is disputed] Private renters had the highest weekly housing costs, paying on average £176 per week in rent. Mortgagors paid an average of £153 per week in mortgage payments while mean weekly rents in the social housing sector were £98 for housing association tenants and £89 for local authority tenants. When considering the gross weekly income, including benefits, of all household members, the proportion of income spent on housing costs was 18% for mortgagors, 29% for social renters, and 34% for private renters.[neutrality is disputed]

See also

References

  1. ^ "EHS 2013–14 Annual Reports published" (PDF). English Housing Survey Bulletin. No. 13. Retrieved 10 October 2017. 
  2. ^ "Land Registry - search the house price index". Landregistry.data.gov.uk. Retrieved 2016-01-06. 
  3. ^ "The widening gulf between salaries and house prices". Theguardian.com. Retrieved 2016-01-06. 
  4. ^ "Bank of England Statistical Interactive Database | Interest & Exchange Rates | Official Bank Rate History". Bankofengland.co.uk. Retrieved 2016-03-07. 
  5. ^ "Why UK house prices have grown faster than anywhere else". Telegraph.co.uk. Retrieved 2016-01-06. 
  6. ^ "Green belt a "green noose", claims Adam Smith Institute". Environmentsite.com. Retrieved 2016-01-06. 
  7. ^ "Build on the green belt or introduce space rationing: your choice", Economist.com, retrieved 2016-01-06 
  8. ^ Kristian Niemietz (April 2012). "Abundance of land, shortage of housing : IEA Discussion Paper No. 38" (PDF). Iea.org.uk. Retrieved 2016-01-06. 
  9. ^ "Green Belts: breathing spaces for people and nature - Campaign to Protect Rural England". Cpre.org.uk. Retrieved 2016-01-06. 
  10. ^ "The UK national balance sheet: 2017 estimates". Ons.gov.uk. Retrieved 8 January 2018. 
  11. ^ "Savills UK | The value of land". Savills.co.uk. Retrieved 2016-01-06. 
  12. ^ "Stamp Duty Land Tax". GOV.UK. 2015-12-11. Retrieved 2015-12-29. 
  13. ^ Watkins, Simon. "Tax haul falls as stamp duty rise hits sales of top homes". Dailymail.co.uk. Retrieved 2016-01-06. 
  14. ^ Hawkes, Alex (2015-11-21). "Hopes rise that top rate of stamp duty may be cut as sales of upmarket homes collapse". This is Money. Retrieved 2016-01-06. 
  15. ^ "Stamp duty: has London finally lost its status as the luxury property hotspot of the world?". Telegraph. 2015-11-30. Retrieved 2016-01-06. 
  16. ^ Jonathan Prynn; Joanna Bourke (2015-07-24). "Stamp duty rise hits London home prices with fastest fall since the crash". Standard.co.uk. Retrieved 2016-01-06. 
  17. ^ "Estate agents' fees exposed - March - 2011 - Which? News". Which.co.uk. 2011-03-31. Retrieved 2012-09-23. 
  18. ^ "What sort of property survey should you go for?". MoneySupermarket.com. 2011-07-18. Retrieved 2015-12-29. 
  19. ^ Choosing a conveyancer in 2013 by Graham Norwood in The Guardian, 15 February 2013. Retrieved 18 September 2013.
  20. ^ Mortgage fees climb to new high Jessica Winch, The Telegraph, 9 April 2013. Retrieved 12 October 2013. Archived here.
  21. ^ "English housing survey bulletin: issue 13". Gov.uk. Retrieved 8 January 2018. 
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