High house prices and rising interest rates are increasingly limiting young peoples’ access to the housing market, with some of the worst affected areas in the South West of England.
The report titled ‘Can't buy: Can rent - the affordability of private housing in Great Britain’ has been written by Professor Steve Wilcox of the University of York, using Hometrack data on house prices and rental levels.
It identifies the proportion of young working households who are unable to access the property market in their local area at the lowest level - the so called Intermediate Housing Market (IHM).
The analysis shows that, nationally, 24.3 per cent of young working households are unable to purchase property at the lowest level in their local housing market.
Regionally the South West has the greatest proportion of young households priced out of the market (34.0 per cent) followed by London (31.5 per cent) and the South East (30.2 per cent).
Scotland is the most affordable area with 15.8 per cent of young working households priced out of the market. In the very worst affected areas of the country, more than 50 per cent of young working households are priced out of their local market - Kerrier (53.1 per cent) and Penwith (50.8 per cent) in the South West and South Buckinghamshire (50.7 per cent).
Wilcox commented: “While most affordability analysis focuses on the owner occupied sector, this new analysis reveals that the cost of private renting is now much cheaper than the cost of buying, and as far as the supply of affordable housing is concerned the rented sector is an important part of the solution.”
In all regions, and in the majority of local authority areas, the costs of private rents were significantly lower than the costs of house purchase. In England and Wales, private rents in 2006 represented less than two thirds of the level of house purchase costs.
Wilcox continued: “Not too long ago there was little difference between the costs of buying and renting, but while house prices tripled in the years since 1994, private sector rents only increased in line with earnings, and the costs of renting have as a result fallen relative to the costs of buying.”
Rent to income ratios are highest in London where they are equivalent to 25.5 per cent of average household earned incomes. In the South East the ratio is 22.0 per cent and in the South West 21.2 per cent. The average for England as a whole is 20.5 per cent.
House prices relative to income levels
The analysis of house price to household income ratios is based on the average price of a 2-3 bedroom home. At a regional level, it shows the highest ratio is in London (5.08:1) closely followed by the South West (4.84:1) and the South East (4.67:1). At a local level, the analysis reveals that there are forty areas with a house price to income ratio higher than 5.50:1.
The least affordable authority is identified as Kensington & Chelsea, with a house price to household income ratio of 9.23:1. In addition a further eight London authorities have ratios in excess of 5.50:1.
Sixteen of the least affordable areas are located in the South West, with house price to income ratios ranging from 6.96:1 in Chistchurch down to 5.58:1 in West Devon. At the other end of the spectrum in 2006 there were just nineteen areas where house price to income ratios fell below 3.00:1.
Richard Donnell, Hometrack's director of research, reflected on the findings: “The affordability problems highlighted in this research are largely a result of an unbalanced and inflexible supply of homes which has led to high entry costs for housing.
“While the Government has recently set out new targets for house building this research highlights the importance of developing the right type of housing in the right forms of tenure.
“The private rented sector is taking much of the strain and while the rental market has grown in recent years, it is clear that this growth needs to be sustained to ensure adequate housing choice for those priced out of the market.”
The National Landlord Association comments on today's research from Professor Steve Wilcox of York University, conducted on behalf of Hometrack, where he concludes that renting is now cheaper than buying.
David Salusbury, chairman of the National Landlords Association (NLA), commented on the findings: “The NLA has consistently championed the private rented sector as providing good quality, affordable housing for a wide cross-section of society, and we are pleased to find support coming from this independent research.
"People in the UK have been lulled into thinking they must buy their own home. But the key to property ownership has always been hard work and careful financial planning. For those who are unable to afford to buy, renting offers a good value alternative.
"There should be no stigma attached to renting, especially as the standard of homes in the sector has steadily risen over the years. The private rented sector is a vital component of the British property market, offering much greater flexibility than home ownership. Indeed, for some people it may be the appropriate solution throughout their lives. Professor Wilcox’s research goes some way to proving that renting can be the right financial decision for many.”
