Home Truths: Wider context for housing affordability

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  Richard Donnell's slides from Resolution Foundation event on housing affordability Full details at http://www.resolutionfoundation.org/events/home-truths-scale-britains-housing-crisis-and-how-/ #hometruths
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  • 1. Wider context for housing affordabilityHome TruthsRichard Donnell, Research Director, 16 May 2013#hometruths
  • 2. 2© Hometrack 2013Overview> Affordability debate starts with the price of private housing and the cost of accessing it> No major re-correction in house prices> Pressure on rental markets> Impact of government schemes to stimulate demand> Local solutions for local housing markets> Summary#hometruths
  • 3. 3© Hometrack 2013Low turnover creates scarcity and supports house pricesSource: Hometrack0%2%4%6%8%10%12% 196019641968197219761980198419881992199620002004200820122016Turnoverrateofprivatehousing%pa> Low churn creates scarcity andsupports prices> Historically low turnover currently atjust 4% – a move every 25 years> Exacerbated by cost of moving andlow inflation> New housing completions well belowhousehold growth rates add toscarcity> 43% sales in 2012 were cash buyersor BTL investors#hometruths
  • 4. 4© Hometrack 2013Low mortgage rates support pricing for existing ownersSource: Hometrack - Note: Implied house price is what could be bought using 35% net income to meet mortgage repayments atprevailing LTV and average mortgage rate over time£0£50,000£100,000£150,000£200,000£250,0001976 1983 1991 1998 2006 2013Actual house price UKImplied house price> Comparison of actual houseprices against implied house price> Clear disconnect between actualand implied prices in late 1980sand mid 2000s.> Support from lower interest ratesclear over 2008-date.> Implied prices very sensitive tochanges in mortgage rates#hometruths
  • 5. 5© Hometrack 2013Lower quartile price of a 2 bed home is lower …Source: Hometrack£0£50,000£100,000£150,000£200,000£250,000LondonSEastSWestEastWMidsEMidsY&HNWestNEast2bedpropertylowerquartilepricePeak Current-2%-4%-10% -9%-10% -10% -14% -15% -18%#hometruths
  • 6. 6© Hometrack 2013… but higher deposit requirements offset lower pricesSource: Hometrack£0£5,000£10,000£15,000£20,000£25,000£30,000£35,000£40,000£45,000LondonSEastSWestEastWMidsEMidsY&HNWestNEastAveragedepositrequiredtobuyPeak Current#hometruths
  • 7. 7© Hometrack 2013Pressure on private rental marketSource: Hometrack£0£200£400£600£800£1,000£1,200£1,400£1,600£1,800£2,0002008Q12008Q32009Q12009Q32010Q12010Q32011Q12011Q32012Q12012Q32013Q1Rentpercalendarmonth(2bed)LondonSouth EastRest of GB> Two rental markets – onein London and rest of UK> Rental growth outsideLondon has been limitedaveraging 1.5% pa> Rents doing well to risegiven pressure onhousehold incomes> Drivers of affordabilitymore complex than buyingdue to impact of occupancy#hometruths
  • 8. 8© Hometrack 2013Affordability – renting v buying£0£50£100£150£200£250£300£350£400£450EMidsEastLondonNEastNWestSEastSWestWMidsY&HsideHousingcosts£pw(2bed)RentBuy 80% LTV @3.75%Buy 95% LTV @4%Source: Hometrack> Rental costs per week are 20%higher than the cost of buyingwith an 80% LTV mortgage> Shift to 95% LTV at 4%borrowing under Help to Buy andrenting is on a par with buying –very optimistic assumption onmortgage rate> Too many unknowns on thedetails of the Help to Buy MIGand flows into re-mortgagingversus home purchase#hometruths
  • 9. 9© Hometrack 2013What incomes/products work in which markets ?£0£10,000£20,000£30,000£40,000£50,000£60,000£70,000£80,000LondonSEastEastSWestWMidsY&HumberEMidsNWestNEastIncomerequiredBuy outrightPrivate rentAffordable rent (63% OMRV)LCHO 35% initial saleSource: Hometrack> Establish incomes to afforddifferent tenures> Make sure there is a market forthe housing tenure/product> Understand the choices forhouseholds> Ensure strategies are tailored tomarket/affordability dynamics#hometruths
  • 10. 10© Hometrack 2013Summary> No end in sight to level of capital values> Banks still de-leveraging balance sheets – strong political pressure to lend> Occupancy dynamics differ between renting and buying> Impact of Help to Buy uncertain> Solutions need to come from local housing markets and their dynamics#hometruths
  • 11. 11© Hometrack 2013May 21, 2013Hometrack6th Floor, The ChambersChelsea HarbourLondonSW10 0XFenquiries@hometrack.co.ukwww.hometrack.co.uk
  • 12. Home Truths: the scale of Britain’shousing crisis and how to fix itVidhya AlakesonRichard DonnellNatalie ElphickeKeith ExfordCampbell RobbJules Birch@resfoundation……………………………………………………………………………………………………..#hometruths
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