The publication of the Halifax Key Worker Housing review is another indicator of the shift in the housing market over the last five years.
Due to the low base rate environment, we’ve reported significant improvements in affordability for first time buyers and homeowners alike. We measure whether a town is affordable for key workers by looking at the ratio of the average house price to local average earnings of key workers. Housing is deemed affordable under 4.0, where 4.0 and above is unaffordable.
Previously, key workers, specifically nurses, teachers, police officers, fire fighters and paramedics, may have had access to specific Government housing schemes. That is no longer the case, but looking at the changes in their salaries and house prices over the last ten years serves as a good indicator of housing affordability in the rest of the market too. The measure we review is not foolproof indeed, given that it is based on a single income, it is in fact conservative – but again provides a sense of how the market has changed for people in professions such as these.
This latest survey shows that two in five towns (41%) are affordable for the key workers in today’s market. By comparison, in September 2007, homes in just 12 UK towns (3%) of UK towns were affordable for key public sector workers, demonstrating the impact of falling house prices over this period. Since that 2007 peak, the dip in house prices combined with a growth in earnings means that housing affordability has improved significantly, though has slowed in the last twelve months.
As with all housing statistics though, there are different stories across the country. The areas that have seen the biggest improvement has been in northern England, in Wales and in Scotland. The picture has not changed that dramatically in London and the South East, where affordability issues remain.
For instance, there are no areas of London that are affordable for average key workers, and Clacton on Sea (Essex) and Gosport (Hampshire) are the only two affordable towns in the South East. That said, in 2007 – not a single town in London or the South East was classed affordable for key workers – which demonstrates a move in the right direction. The affordability ratio in some areas of London shows a dramatic story – compared to the 4.0 affordability ‘benchmark’ – Kensington and Chelsea is the most unaffordable area at 18.4.
At the other end of the scale, Wales is the most affordable region in the UK for key workers, with an average house price to key worker earnings ratio of 3.6 in 2012. The North (3.7), Yorkshire and the Humber (3.8) and the North West (3.8) follow closely behind. By comparison, in 2007, no region had a house price to earnings ratio below 5.0.
However, although the survey shows the change in affordability since 2007 – there is a different regional picture that we must look at beyond the headline figure. For example, on balance there was an increase in key worker affordability last year, but as 32 towns became more affordable, 15 became less affordable.
Key workers may face challenges in getting on or moving up the ladder, but first time buyers and homebuyers across the entire market face the same hurdles. Saving the deposit, meeting criteria, managing payments is not necessarily easier for those in any job. Indeed, those groups of public sector workers simply represent the course that many might take.
So to the question – does this positive news mean the market is getting back on its feet? We’ve maintained that it will be a slow recovery for the housing market – and we cannot look at measures such as this in isolation. Whilst some suggest rising house prices will demonstrate a restored market that will, in turn, put pressure on affordability.
The slow down in change over the last 12 months demonstrates that recovery is continuing at a very measured pace – but for now, an increase in affordability for any group in the market is a positive sign indeed.
