Transcript Affordability Matters

Affordability Matters
Stephen Nickell
Chair of the National Housing and
Planning Advice Unit
November, 2007
Presentation at the Conference on Extending Low Cost Home
Ownership, 29th November, 2007.
Stephen Nickell is Warden of Nuffield College, Oxford,
and Chair of the National Housing and Planning Advice Unit.
What is Happening to Housing Market
Affordability?
• Since 1997, real house prices have doubled. Real earnings
have increased by 15%.
• Existing home owners find this a source of both comfort and
collateral.
• Those outside the magic circle of homeownership find homes
becoming less and less affordable.
• The ratio of lower quartile house prices to lower quartile
earnings has risen from around 4 in 2000 to around 7 today.
Indexes of real house prices, earnings and GDP, United Kingdom (1997 to 2006)
250
Real GDP
Real House prices
Real Earnings
Index (1997=100)
200
150
100
50
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Housing affordability: ratio of lower quartile house prices to earnings
10
LONDON
9
SOUTH EAST
SOUTH WEST
8
EAST
ENGLAND
7
WEST MIDLANDS
EAST MIDLANDS
Ratio
6
YORKSHIRE AND THE HUMBER
NORTH WEST
NORTH EAST
5
4
3
2
1
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Mortgage payments as a proportion of income: first time buyers (1980 Q1 to 2007 Q1)
40
35
Capital + interest payments as a % of income
Average mortgage interest rate
30
20
15
10
5
2007
2004
2001
1998
1995
1992
1989
1986
1983
0
1980
Percentage
25
Does it Matter?
• As affordability worsens, more people are pushed into private renting,
forcing up rents.
• More people are driven into the already hard-pressed social renting sector
and queues lengthen.
• Deprivation increases and the situation worsens in already deprived areas.
• This affects us all. The economy suffers from the consequent impediments to
labour mobility.
• Key workers are unable to find somewhere to live near where they work.
• Increasing quantities of taxpayers money are required to address these
problems.
What is the National Housing and Planning
Advice Unit (NHPAU)?
• The NHPAU is a non-departmental public body consisting of a small group of
planners, economists, statisticians and geographers. Kevin Williamson is Chief
Executive.
• The work programme is shaped by a six person Board.
• The basic job of the NHPAU is to help improve affordability by providing
independent advice on the impact of regional housebuilding plans on prospects
for housing affordability. Planners must take affordability into account under
PPS3.
• NHPAU will also provide information on wider affordability issues and
undertake and commission research.
• The launch of the NHPAU was on 7th June, 2007.
Current Research Priorities
• What are the consequences of worsening affordability on
economic and social conditions including the demand for
social housing?
• What is the precise impact of infrastructure constraints on
housing supply, including the role of the Environment and
Highways Agencies?
• What is the impact of the buy-to-let and second homes on the
functioning of the housing market?
What do Affordability Prospects
Look Like? І
• Household projections suggest that the number of households in England
will grow by an average of around 223K per annum over the next 20 years.
This rate is significantly higher than in the recent past. Furthermore,
projected growth up to 2020 is even faster at an average of around 230K per
annum.
• 168K new homes were completed in 2006-7.
• The fact that the rate of completion of new homes has been well below the
rate of formation of new households means there is a large build-up of
unsatisfied demand.
• The evidence suggests that over the long-term, a 1 per cent rise in real
incomes raises house prices by 2 per cent if the housing stock remains
unchanged.
Number of completed dwellings
Housebuilding: permanent dwellings completed, by tenure, England
400000
350000
300000
250000
200000
150000
100000
50000
0
1946 1952 1958 1964 1970 1976 1982 1988 1994 2000 2006
Private enterprise
RSLs
Local Authorities
All dwellings
Household estimates and household projections, by household type, England only
30000
Number of households (000s)
25000
20000
one person
other multi-person
lone parent
15000
cohabiting couple
married couple
10000
5000
0
1981
1986
1991
1996
2001
2006
2011
2016
2021
2026
What do Affordability Prospects
Look Like? П
• If the housebuilding plans currently embodied in the draft RSS plans
(around 200K p.a.) are fulfilled, house price to earnings ratios are likely to
rise from around 7 to around 10 over the next twenty years.
• If Green Paper plans (reaching 240K p.a. by 2016, 3m. new homes by
2020) are fulfilled, house price to earnings ratios are likely to rise to around
9.5 over the next twenty years. This may be reduced significantly by
biasing new homes towards more expensive regions and even further by
some bias towards larger family homes which are in shortest supply.
• NHPAU projections indicate that a plan to reach 270K new homes p.a. by
2016 would come close to stabilising affordability in the long run.
How does this Relate to Low Cost
Home Ownership?
• Unless providing low cost home ownership support results in more homes
being built than would otherwise have been the case, it will lead to
worsening affordability.
• Those in receipt of support will be able to get on the housing ladder but
only at the expense of others not in receipt of support.
• Increasing supply is the key. Increasing demand without increasing supply
simply benefits existing owner occupiers.