Paul Hunter, Head of Research, The Smith Institute
The housing crisis continues to preoccupy the media and policymaking worlds. Whilst the focus has been on issues such as generation rent and chronic undersupply much of the analysis has been spatially blind. Analysis of the data, from a broad geographic perspective, shows that we are facing not so much one housing crisis but two.
The first is London based. The capital has seen house prices grossly inflated, making homeownership now beyond most people’s reach. Homeownership is almost certainly now a minority tenure in London. This is hardly surprising given the chronic shortage; in 2008 the latest figures showed that there were only 4,000 more homes than households in London. I doubt whether there is any surplus today. This (along with freely available mortgage finance prior to 2008 and high levels of foreign investment in housing as a asset class to be left empty for capital appreciation) has resulted in average house prices to earnings rising from 3 to 1 in 1997 to a staggering 9 to 1 today. This has knock-on effects for those who struggle to access social housing with the private rents eating up more and more of Londoner’s salaries. This chronic shortage has resulted in London’s house prices rising back to almost pre-crash levels.
Housing tenure, London (1991=100)
Social housing as one tenure
Source: DCLG, Live table 109
Meanwhile those outside London and the South East have seen house prices fall. A 1% fall nationally in 2012 disguises bigger drops in poorer regions. The economies in these areas have yet to pick up as they have in the South. The lack of growth added to and connected with less acute housing shortage means prices are lower and falling. This and lower wages to house prices does not in itself make homeownership difficult at the moment. With falling values banks are requiring higher deposits as collateral in these areas. For those who bought towards the end of the boom in (now) depressed regions today face negative equity which will constrain labour mobility and stifle life choices.
In short, what we have seen is housing shortages, rapidly falling homeownership, and rising prices in London. Outside the capital the picture is of struggling economies, falling prices and much higher levels of ownership. In a twenty year period London has seen a 7.5 point drop in homeownership while, barring the South East, other regions have only seen a 3 point drop. Lower quartile house prices to lower quartile earnings in the North East are 4.5, 6 in the West Midlands and 9.5 in inner London – you would need a very redistributive (or predistributive) regime to make homeownership affordable through incomes alone in London.
What we are experiencing is not so much a housing crisis but housing crises. And, they will not be solved without accepting that the housing problem is as much about economic geography as it is about mortgage finance and ‘generation rent’.