Intelligence: 26 April 2018Housing affordability continues to worsen...

New data published by the Office for National Statistics (ONS) reveals that house prices across England have continued to increase at a faster rate than household earnings, resulting in further worsening of housing affordability.  The data reveals no significant change in Wales.

The Housing White Paper ‘Fixing our broken housing market’ (February 2017) referred to “an all-time record” high in terms of housing affordability, but the 2017 affordability ratios published on 26 April 2018 reveal that housing affordability has worsened further.

According to the latest 2017 affordability ratios, on average, working people in England and Wales could expect to pay around 7.8 times their annual earnings on purchasing a home in 2017.  This compares to 7.6 times in 2016 and just 3.6 times in 1997.

An increase in the ratio from 7.6 to 7.8 represents a 2.4% increase between 2016 and 2017.  Of the 346 local authorities in England and Wales, 218 (63%) experienced an equivalent or higher increase in the ratio between 2016 and 2017, whilst 269 authorities (77%) experienced an overall worsening.  This compares to only 70% of authorities experiencing an overall worsening in the affordability ratio the year before (2015-2016).

Affordability is clearly worse in London and the South East (Map 1).  However, affordability issues are not confined to these regions – there are pockets of significant affordability constraint outside of London and the South East.  For example, Harrogate’s ratio is 10.36; almost double the regional average (5.90). Trafford in Greater Manchester has a ratio of 8.94 which is over 50% higher than the regional average (5.79).  The maps illustrate where these pockets are located.

Map 1 – 2017 affordability ratios (local authority level)



Map 2 – Change in affordability ratios 2016-2017 (local authority level)







The implication of these new ratios on the assessment of housing need

The draft Planning Practice Guidance (March 2018) details the Government’s proposed Standard Method for assessing housing need.  As part of this assessment, an uplift to local authority’s housing numbers based on the ONS household projections is required in those authorities where the affordability ratio is greater than 4.0. This is to address market signals issues.  The extent of the uplift increases the further the affordability ratio rises above 4.0. 

According to the 2017 affordability ratios, 320 English local authorities (98%) had house prices that were more than four times median workplace-based earnings, therefore requiring an upward adjustment to ONS household projections. 

The uplift generated from the 2017 affordability ratios, when applied to the 2014-based household projections, identifies housing need nationally of 305,000 dwellings per annum.  This compares to need of 300,000 dwellings per annum nationally with the application of the 2016 affordability ratios.  However, it should be noted that these calculations will need to be revisited when ONS release the 2016-based household projections (expected in September 2018).

Map 3 illustrates the geographical variation across the country with warm colours representing those authorities with a higher uplift and cooler colours representing those authorities with a lower uplift according to the 2017 ratios.  Analysis of the 2016 ratios in comparison to the 2017 ratios reveals that in 243 authorities (75%) the 2017 ratios result in a higher level of uplift.   


Map 3 – Comparison of 2016 and 2017 uplift (local authority level)



We should acknowledge that the Standard Method proposes a cap on the uplift that can be applied and therefore the reality is that the 2017 ratios are unlikely to have a significant impact on local authorities housing need assessments despite them demonstrating a worsening in affordability over the last year.

Nonetheless, the 2017 affordability ratios, along with new 2016-based household projections, will be used in the Standard Method calculations when it comes into effect in November/December 2018.  Together the new affordability ratios and household projections may result in substantial changes to the assessments of local housing need for some local authorities, in comparison to the indicative housing need figures published along with Standard Method proposals.

Technical detail

Housing affordability is calculated by dividing house prices by annual earnings.  The analysis presented here is based on median house prices and workplace-based earnings.  Workplace-based earnings refer to the gross full-time annual earnings recorded for the area in which the employee works.  This measure of affordability indicates the extent to which employees can afford to live where they work, not where they necessarily already live.

Posted with the following keywords:
ONS, Planning Practice Guidance, Housing White Paper, UK Housing, Affordability, Development Economics