Hometrack pointed out that the debate of first-time buyers trying to access the housing market is based on the assumption that there is a ready supply of property making up the so-called 'first rung' of the housing ladder.
The report highlights that more than two thirds (67%) of housing is made up of 'family' homes of three or more bedrooms with three bed properties accounting for the bulk (47%) of supply.
"The lack of smaller sized homes, combined with strong demand from investors and first-time buyers, has led to a constant upward pressure on prices at the bottom end of the ladder. This in turn has led to the value of one and two bed homes being compressed up towards the price of three bed properties, where values are set. The net result is relatively high entry prices for one bed homes, compounding the affordability pressures faced by first time buyers," comments Richard Donnell, Hometrack's director of research. He adds: "The current differential from a three bed (£194,000) to a one bed property (£141,000) is small compared to the early 1990's when first-time buyers were able to skip the first rungs of the ladder."
This imbalance in supply is not just a problem for those looking to get onto the property ladder but also for those looking to trade down. For downsizers, the amount of equity released from their property is often limited and for many, is not enough to compensate for the loss of space. All this combined means lower turnover of family houses which in turn leads to a lack of supply of larger homes coming to the market. This keeps the pressure on the value of family housing which feeds back down the ladder into the first-time buyer sector.
"Policy makers are clearly faced with some major challenges," Donnell comments. "The debate over increasing housing supply tends to be focused on the headline numbers with little emphasis on the types of housing that are needed," he adds. One solution to the problem could be to increase the development of smaller sized housing as a means of boosting the first rung of the ladder.
But, as Donnell points out, this runs contrary to current thinking which questions the number of new flats being built. He adds, "While it's true to say that 50% of new properties built last year were flats, the majority of these - 90% - were in fact 2 beds or more. One bed new homes accounted for just 10% of new supply last year."
This shortage of supply has enabled developers to achieve premium prices for new build apartments relative to second hand homes - further limiting the opportunities for those looking to access the market.
One possible solution to the problem could lie in the building of bespoke housing for those looking to trade down. Donnell again, "The reality is that for many, the economics of trading down are not hugely attractive, but if a good alternative were found this could potentially free up the availability of family housing, which in turn should unwind prices back down the ladder. It would certainly provide more balance to the existing supply."
