Report reveals many households cant afford local house prices

Government policy makers, regional planners and housing providers are today urged to reconsider their strategies to take account of a growing number of young, working households who cannot afford local house prices.

Figures compiled for the Joseph Rowntree Foundation point to more than 1.25 million younger households in England, Scotland and Wales whose incomes would be too high to qualify for Housing Benefit if they were living in social rented accommodation, but too low to afford a mortgage on even the cheapest two- or three-bedroom homes for sale in their area.

Just over a fifth of households aged under 40 are affected across Britain – but in London, the South East and South West regions, one in three are potentially part of an alternative intermediate housing market for those who cannot afford full ownership.

It is estimated that nearly 60,000 newly forming young households each year find themselves in this situation.

The research identifies a league table of 40 districts, all but one in the South, where 40%or more of younger working households are unable to afford local prices at the lowest decile (the 10%) for two- or three-bedroom properties.

The least affordable areas on this measure are Weymouth & Portland and Bournemouth in Dorset, South Buckinghamshire, Carrick in Cornwall and the London Boroughs of Kensington & Chelsea and Harrow.

Prof. Steve Wilcox, the author of the study from the University of York, says: “This analysis reveals a yawning gap in the market for intermediate housing products such as shared ownership and attractively priced private renting that is potentially much larger than previously recognised by government or housing providers.

“At the very least the figures justify some new and creative thinking on ways that the current range of intermediate housing products could be expanded to appeal to the growing number of young, working households who simply cannot afford local house prices.”

The study notes that overall ratios of house prices to working household incomes are at record levels nationally. The impact of higher house prices has been reduced by low interest rates, but mortgage cost to income ratios last year were, nevertheless, close to the peak levels last experienced in 1990.

Local house price to household income ratios for younger working households exceed five to one in 33 districts.

Against this background the report seeks to quantify the intermediate housing market using a new definition: the proportion of working households in each local authority area that would not be eligible for Housing Benefit in the social housing sector, but who cannot afford to buy a property at the lowest decile price for two- and three-bedroom homes.

This definition offers a more comprehensive, needs-based assessment of the intermediate market than previous analyses that have estimated demand for particular types of product, usually shared ownership.

The ‘top 40’ areas using the new IHM measure include Weymouth & Portland and Bournemouth where more than half of all younger working households cannot afford the bottom decile price for local houses. The local authorities in the table are divided between London (13), the South East (14) and the South West (12). But they also include Ryedale in North Yorkshire.

The report also identifies three districts in the North of England where prices for two- and three-bedroom homes are so low in relation to local pay rates, that there is no intermediate housing market using the new definition. These are Copeland in Cumbria, Pendle in Lancashire and Middlesbrough.

Lord Richard Best, director of the Joseph Rowntree Foundation, says: “The government has acknowledged the gap between home ownership and eligibility for subsidy and social housing. It has consulted on plans for ‘Homebuy’, to enable housebuyers to use equity loans to increase their buying power.

“But Professor Wilcox’s report reveals the sheer scale of the problem. If large numbers of households are not to miss out on the benefits of home ownership, then much greater efforts – and probably much more public money – will be needed to give them a break.”