In a report on housing affordability, the Office for National Statistics (ONS) said that, although average earnings had doubled since 1997, house prices had risen by four-and-a-half times in that period.
According to its data, homes at a national level were affordable until 2002 and have not been affordable since then. The ONS threshold for housing affordability is a ratio of five times earnings, and in 2002, five years of earnings totalled £102,810, while the average house price was £104,000. At the time, affordability was at a ratio of 5.12 in England and 3.71 in Wales.
The average price of a home sold in England and Wales rose by £9,500 or 3.4% in the year to September 2023. Meanwhile, average earnings increased by just £1,900 or 5.6%.
Arjan Verbeek, CEO of Perenna, said: “The journey towards inclusive and equitable homeownership is far from over. The overall earnings gap is still very high – and it’s almost surreal to see that in the late 1990s, house prices were only roughly three-and-a-half times more expensive than average annual earnings.
“It’s crucial that we continue to build on this momentum with a focus on creating an accessible housing market that moves away from short-termism and instead welcomes long-term, fixed rate mortgage products that offer security and affordability to buyers. By doing so, we can ensure that this progress is not a temporary fluctuation, but the beginning of a long-term trend towards a more inclusive housing market.”
Affordability returns to pre-pandemic levels
Housing affordability at a national level fell back to pre-pandemic levels in 2023, as ONS figures revealed full-time employees in England could expect to spend around 8.3 times their annual earnings to purchase a home.
The ONS based this on the average cost of a home in England at £290,000 in the 12 months to September and an average salary of £35,100.
This was similar to 2022, when the ratio was eight-and-a-half times earnings, as well as the pre-Covid era, following an increase in the ratio over 2020 and 2021. The body said that the worsening of housing affordability aligned with the stamp duty holiday, meaning the ratios in 2022 and 2023 were a continuation of long-term trends.
In Wales, housing affordability was calculated at 6.1 times earnings, based on the average house price of £196,500 and a salary of £32,400.
The ONS said that, in Wales, there was little statistical difference between housing affordability in 2022 and 2023, as this fell slightly from 6.4 to 6.1.
Housing affordability worsening
Although housing affordability had improved in 75% of the 318 local authorities tracked since 2022, the ONS said it was “considerably worse” compared to when the series began.
Its data showed that 23 areas in England and Wales, or 7%, had homes selling for less than five times workers’ earnings in 2023. This was the most affordable group and an improvement on the 16 areas recorded in 2022.
While this was a return to numbers seen over 2016 to 2020, it was significantly down on 1997, when 88% of areas had this ratio.
Burnley was the most affordable local authority for housing in 2023, followed by neighbouring area Hyndburn. Both had ratios below 4%.
The number of areas with the least affordable housing, at a ratio of 12 or more, fell from a peak of 76 in 2021 to 60 in 2023. This represented 19% of areas and a return to pre-pandemic levels.
In London, 82% of local authorities had affordability ratios above 12 in 2023.
Kensington and Chelsea remained the least affordable area for housing, although the ratio fell from 39.8 to 34.2. The ONS said this reflected consistently high house prices despite there being a £206,000 decline in values since the 2022 peak in the area.
Although London and bordering areas accounted for the 10 largest improvements in housing affordability in the last five years, they remained the least affordable in England and Wales, ONS said.
Across England and Wales, new-build homes are typically less affordable, at a ratio of 10.3 times earnings compared to eight times earnings for existing properties.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Houses are frankly unaffordable at the moment. The pandemic property boom ratcheted up the cost of property, and while wages are growing faster at the moment, they fell so far behind house prices in recent years that there’s acres of ground yet to be made up. It means buyers in England are having to find an astonishing 8.3 times their income to buy a home.
“This would be hard enough at a time of rock-bottom interest rates, but the fact these have climbed so significantly means the bottom rung of the property ladder is at head height. The question is how we can stretch to more expensive properties without rupturing something important.”
A report from last year found that UK housing falls behind other nations in terms of affordability, condition and age.
