In its first Housing Market Report from a Southern perspective, “Look South”, Portman says that this surprising trend reflects both lower than average growth in household incomes in the South of England over the same period, and the fact that house prices have remained higher in absolute terms than the national average, thus less affordable.
According to the report, since the end of 1988 house prices in the South East have grown 230%, and in the South West 254%. However over the same period, the UK’s overall average house prices have risen 284%, and London’s house prices have grown 262%.
Analysis of the past twelve months has shown the same pattern; the South West and South East have seen prices increase 14.1% and 8.9% respectively (Q3 ‘03 to Q3 ‘04), whereas the UK as a whole has seen 16.8% growth.
However average house values, having started at a higher level in 1988, remain higher in the South than the national average. The average house price in the South East is currently £242,000 according to the ODPM, and £207,000 in the South West. This compares to an average of £189,000 for the country as a whole (£281,000 for Greater London).
A key reason for the variation in house price changes across regions in the 15 year period is differences in household incomes and household income growth. Absolute income levels in the South are not materially different to that of the rest of the UK (average household incomes: South West £39,543; South East £45,566; UK £39,793, London £55,314), and ODPM figures show that since the end of 1988, household income growth in the southern regions has lagged or at best matched the average growth rate for the UK as a whole. In London and the South East, household income has risen by, respectively, 136% and 133%, and the South West has just matched the UK average of 154%.
According to Portman, this combination of higher than average house prices yet below average income growth explains why house price rises in the South have been more constrained than elsewhere in the country. However, ODPM figures suggest that southern households are now stretched in terms of house prices relative to income. Latest figures reveal that the average house price to household income ratio in the South East is 5.3 times, and for the South West 5.2 times. This compares to 4.8 times for the UK and 5.1 times for London. All of these figures are historic highs.
For first time buyers, the disparity is equally evident: the UK first time buyer house price to income ratio is 4.2, while in the South East it is 4.5 and the South West 4.4.
However house price incomes ratios ignore the benefits of much lower interest rates and the relatively low cost of servicing mortgage debt. Compared to the past, current mortgage repayments as a percentage of household income are not much higher than the long-term averages, for any of the regions.
Unemployment is also at record low levels; the average unemployment rate nationally is 4.7%, and it is particularly low in the South East and the South West, respectively 3.6% and 3.4%. This implies job security, rising wage incomes and increasing consumer and household confidence, says Portman.
The above two factors mean that while the housing market has undoubtedly weakened in the past six months, there is little downward pressure on house prices in general, and in the Southern regions in particular.
Portman Group Development Director, Matthew Wyles said: "The housing market is not a single market, and as this report shows, there are marked regional variations in the house price trends across the country, and the timing and extent of booms or slumps in the market can be very different from region to region.
“Our analysis suggests that the present level of house prices in the South (and across the country) can be sustainable, and that there is no pressure for a sharp downward correction. While the southern regions of the UK have the highest house price income ratios in the country, and have surprisingly lagged behind the UK average in terms of house price growth over the past 15 years, they have the lowest unemployment rates and share the same historically low interest rates as the rest of the country.
“Mortgage repayments, as a percentage of income, are not significantly out of line with historic averages, and unless interest rates rise much more than is currently expected, mortgage repayments are set to remain low for the foreseeable future. Meanwhile household incomes are continuing to grow. We are therefore confident of a “soft landing” for the Southern housing market.”
