Will your children be able to afford their own home?

The debate on house prices is shifting. Where once you would only see glowing newspaper coverage of rising prices, there is now a note of caution. Even papers long associated with championing house price inflation are including the alternative perspective.

This is probably because public opinion is shifting fast, with two in three voters now opposed to rising prices. Even the majority of over 60s, Express readers, home owners and non-Londoners would prefer stable or falling prices. I think this is because people know that even if they are ok, their children or grandchildren will be stuck. It’s not inter-generational war, but inter-generational worry that has led to an attitude shift about house prices.

New analysis we’ve released today shows just how difficult it is for young families on normal incomes to get a toe on the housing ladder.

We ran a comprehensive data search on all the properties on property website Zoopla on one day in August 2013 to see how many homes were affordable to different types of family. We assumed potential buyers had a 20% deposit, average local incomes and that a bank was willing to lend them the average (3.33) first time buyer multiple of income in the market currently. Even with these fairly generous assumptions, the results show a market that’s not working for families on normal incomes.

For families with two incomes (one full time and one part time) choice is limited to say the least. Our analysis allows us to reveal the exact number of properties on the market that were affordable to typical two-earner couples with children.

  • In Harlow, Essex. It was 26 homes (population 82,000)
  • In Cambridge, it was 0 homes (population 124,000)
  • In Newham, East London it was 7 homes (population 296,000)
  • In Exeter, it was 6 homes (population 118,000)

What’s really striking is that house prices have moved away from average earners to such an extent that only a handful of properties are available, even to those lucky enough to have a 20% deposit.

There are very few homes on the market affordable for a person or family with a single average income, even if they have significant financial help with a deposit. Where once families on one income could expect to become home owners in their lifetime, the chance is now severely restricted unless you are in a couple and both earning.

So what’s the answer?

We think that the debate on house prices has to move away from the assumption that the only way is up. An era of house price stability would allow families on normal incomes to catch up and according to our polling, would be popular too.

We need to move away from tax-payer backed mortgage schemes which are more likely to push up prices than get homes built, according to the IMF and many others.

Instead we need to focus our efforts on the housing shortage: we are currently only building half as many homes as we need each year.

Building enough homes requires action on several fronts:

  • Investment, public and private, in new social rented homes and a better form of shared ownership.
  • Reform of the land market, so that it works for families who need homes and smaller builders, not speculators. Intervention to build new towns with land sold at reasonable prices would bring down the cost for home buyers and, if combined with supporting new builders into the market, could raise the quality of new homes too.
  • Greater diversity of house builders to drive up standards and increase supply – the house builder market has become more concentrated since the banking crisis.

All these changes are achievable given adequate political will.

If we allow the status quo to continue – relying on state backed mortgages to prop up prices – then more and more families will have their hopes of home ownership frustrated and public opinion on rising house prices will harden further.

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6 Comments
  1. I would find it useful if the banks would base mortgage repayments of past rental payments. We currently pay £1650 a month in rent, but the bank says that we can only afford £1100. This means that the mortgage they will offer will not buy the type of property I have been living in for the last 8 years in the area I consider my home.

    I realise that I am financially pretty we’ll off, but am still unable to “get on the property ladder”.

  2. I do agree entirely with the sentiment here about whether rising prices are popular.

    Also why on earth are our politicians getting so hung up on energy prices when the real problem for most people is housing costs?

  3. The idea of building more homes is ridiculous to reduce prices. In Spain they built millions of new homes, freed up lots of land, many snapped up by foreign holiday makers or for people to move out there. There are reports 1 million Brits live in Spain.

    In the 1990s, you could pick up a 2 bedroom flat on the Costa del Sol for £40,000, today, you will not find a 1 bedroom for less then £100,000.

    Building new homes, increases supply, but it does not reduce prices.

  4. “Will your children be able to afford their own home”

    It is our national obsession with home ownership, which had left us with this mess of high house prices. In 1988, house prices crash, people were loosing their jobs and then their homes, people could not move homes as their property was in negative equity. There was no rental market, so people could not downsize.

    Towards the late 90s, people still had negative attitude to housing. House prices were flat, but rising very slowly. Banks were disposing of their repossessed homes.

    In the 1999, as the economy had more confidence, the Property makeover and property ownership TV shows came up. Young ones were told you were going to be left behind if you did not get on the property ladder. They were outbidding one another, to buy that home.

    This national obsession will not go away, so house prices will remain high.

  5. I am a landlord, I don’t mind selling up my rental. However, I think it is unfair, because I will end up having to pay 28% capital gains tax. In Germany it you hold property for 10 years and then you sell you don’t pay any tax. Homeowners don’t pay any tax when they sell at profit.

    I will have to pay £3k in agency fees, £2k in legal fees etc.. buy the time, I look at what is left it is not worth the hassle.

    I don’t think Landlords will sell en-mass, but even if 10% do sell up, it will create a buyers market.

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