For the
Government to set targets for ‘affordable housing’ is actually misleading
because affordability is relative to the state of the housing market (both sale
and rental sectors) at any particular moment in time.
Source: http://www.myfinancialtips.com/ |
As my
children were growing up I was carefully watching the housing market with
dismay as house prices through the mid-nineties and into the early part of the
millennium continued to soar. I am sure
many parents have the same concerns and now wonder how on earth their offspring
will manage to get their feet onto the property ladder. In 1986 my wife and I purchased our first
house. A three bedroomed mid-terraced
property (a previous right to buy property on a council estate) with a small
front garden and a good size rear garden, perfect for raising a young
family. The house cost us £19,000 for
which we obtained a mortgage very easily at the time. Prior to putting in our offer, I remember
having a number of sleepless nights wondering whether we could afford the property
as it was actually £1000 above our maximum budget.
Nowadays
with the accelerated rise in house prices since then, things have changed and
the decisions facing those who want to enter the property market for the first
time have multiplied significantly. Decisions
whether to save for a larger deposit will often result in either ‘living with
the parents’ longer, or possibly renting.
The problem with renting of course is that rental values have also risen
quickly, which results in money which could be saved for a deposit being used
for monthly rent payments instead. It’s
a vicious circle and one that is not likely to change as property prices will
never return to the levels I discuss above, when I purchased my first home in
1986. My son who is now 23 years old keeps
telling me (tongue in cheek I hope!) that he is patient and is more than
prepared to wait for my wife and I to fall off our perch and take the
inheritance! I tell him that even in this circumstance the Government will swoop
down and take a large chunk through inheritance tax, which he is not best
impressed with at all! The above
demonstrates the difference with how I perceived ‘affordability’ less than 30
years ago and how the new generation of first time buyers will perceive what is
affordable for them.
Property Rented Sector
The UK Government definition of affordable housing
is: ‘Affordable housing includes social rented and
intermediate housing, provided to specified eligible households whose needs are
not met by the market. It can be a new-build property or a private sector
property that has been purchased for use as an affordable home’. (Intermediate
housing is
housing which is often provided on a fixed term basis by a Registered
Social Landlord where rents are set in-between the Social Housing Rent and
Open Market Rent) On 14 July 2011, the Minister for
Housing made a written ministerial statement announcing the outcome of the
affordable homes programme 2011 to 2015, managed by the Homes and Communities Agency.
‘As part of the programme, we introduced
the affordable rent product. This allows registered housing providers to charge
no more than 80% of local market rent (including service charges where
applicable) for new affordable homes’. Source: www.gov.uk.
Source: http://blog.windhillrealty.com/ |
‘Unlike the previous two generations, a
large proportion of our population is facing life in unstable, often unfit and
largely unaffordable housing with no prospect of either transitioning to secure
social rent or stepping into home ownership in sight.
Home Truths, a report from the Resolution
Foundation published on Monday,
revealed that for low- and middle-income households in the private rented
sector whole swathes of the country have become unaffordable. Using data
supplied by Hometrack, the
thinktank calculated that a third of the country was now off limits to poorer
private renters at a time when half of young low- and middle-income households
are living in this tenure.
For a renting family with a combined
income of £19,000 a year, half of the country is now unaffordable because the
cost of accommodation takes up more than 35% of monthly take home pay’
Until we address the problem of
housing supply in the UK then it will be impossible to avoid natural economic
market conditions driving the market in an upward direction. Where we have high demand and limited supply
then the only outcome will be a continuing increase in rental values.
Property Purchase Sector
When the Government emphasise the need to build affordable housing
what do they actually mean for those who want to purchase a house for the first
time? Well again, this is not clearly
defined and there is no threshold of ‘affordable’ in terms of property
value. The main way in which the Government
attempt to make houses affordable is to offer numerous support schemes,
initiatives, incentives, etc. These include the recently introduced help to buy
scheme, shared ownership, shared equity (such as first buy), and so on. Most of these schemes offer a percentage
incentive, whether that is in shared equity or a low interest, government
guaranteed loan, based upon the value of the property. While these schemes may help first time buyer
onto the property ladder what is really needed, as with the rented sector
discussed above, is an increase in supply of new build houses and quickly!
A recent article in the Guardian (Link) emphasises the impact of the lack of new housing in the UK: ‘Two numbers sum up one of the biggest problems in Britain today. They are: 240,000 and 108,190. The first – 240,000 – is the rough forecast for how many new homes are needed each year to meet demand; while108,190 is the actual number of new homes added in England in the last financial year. That shortfall swells and falls, but is always there – and it accounts for the country's housing crisis’. At the risk of repeating myself, until we address the problem of housing supply in the UK then it will be impossible to avoid natural economic market conditions driving the market up. Where we have high demand and limited supply then the only outcome will be a continuing increase in house prices.
A recent article in the Guardian (Link) emphasises the impact of the lack of new housing in the UK: ‘Two numbers sum up one of the biggest problems in Britain today. They are: 240,000 and 108,190. The first – 240,000 – is the rough forecast for how many new homes are needed each year to meet demand; while108,190 is the actual number of new homes added in England in the last financial year. That shortfall swells and falls, but is always there – and it accounts for the country's housing crisis’. At the risk of repeating myself, until we address the problem of housing supply in the UK then it will be impossible to avoid natural economic market conditions driving the market up. Where we have high demand and limited supply then the only outcome will be a continuing increase in house prices.
So to answer the question of how to
define ‘affordable’ is actually missing the point. For the Government to set targets for
‘affordable housing’ is actually misleading because affordability is relative
to the state of the housing market (both sale and rental sectors) at any
particular moment in time. Affordability
is a moving feast and will never be a fixed entity due to the complex nature of
the World we live in. One thing that is
for sure is that over the last thirty years due to the significant increase in
house prices as well as the increasing demand for a limited housing supply in
the UK, is that the threshold of affordability has changed. The current generation of first time buyers
face much higher house prices and rents which will continue until something is
done to significantly increase the supply of new houses.
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In 30 years the prices have gone up by around 500%. So in another 30 years the average house price will be around the million mark!
ReplyDeleteYes if property hikes in same ratio in future only few people will have house what about other I don't know.
ReplyDelete