Housing Affordability for First Time Buyers

By Steve Wilcox

This study provides a range of analyses of the difficulties working households, aged 20 to 39, faced in buying a first home in every local authority area of Great Britain in 2005. It includes an assessment of the scope for ‘intermediate housing market’ products, to help working households which cannot afford to buy in the open market, and shows the impact of mobility in London as a means of coping with affordability problems.

The local authority analyses are based on local prices for two- and three-bedroom homes and the incomes of younger working households aged 20-39, who are the vast majority of first-time buyers. While the house-price-to-income ratios are based on mean average house prices, the intermediate housing market analysis is based on lowest decile and lower quarter house prices.

Based on recent averages, this analysis assumes first-time buyers have: a maximum mortgage of 3.75 times household income for households with one adult earner, or 3.25 times household income for those with two (or more) adult earners; an 18 per cent deposit.

Almost three out of every five younger working households in London, the South East and the South West cannot afford to buy at lower quarter house prices, and fall into the broader IHM. While in 2004 London was the least affordable region on this measure, in 2005 the South West became marginally less affordable than London and the South East. In the South West, 11 per cent could not pay a social rent without housing benefit, 37 per cent fell into the narrow IHM, and 9 per cent could afford to buy at lowest decile house prices, but not at lower quarter prices.

On the average house-price-to-income ratios measure, the South West was marginally less affordable than London. This is reversed in the IHM analyses, due to rather greater differentials in both house prices and incomes in London compared with the South West. These different results analyses indicate the limitations of any policy based on a single measure of affordability.

However, in overall terms, affordability worsened in 2005. There are more working households in the IHM than in 2004, and more areas with very high proportions of working households in the IHM. In 2004 there were 40 areas with more than 40 per cent of all younger working households in the IHM; in 2005 there were 51.

Local intermediate housing markets

The two authorities with the highest proportion of younger working households in the narrow IHM are both in the South West (Penwith and Carrick); in eight areas more than a half of all younger working households fall within the narrow IHM. In London, Kensington & Chelsea and Hammersmith & Fulham and, in the South East, South Buckinghamshire and Mole Valley are the highest ranked.

The mobility option

Many households resolve the dilemma of affordability by moving to a cheaper area. This is clearly easier in large cities with good transport, where it is relatively easy to commute to work.

The opposite is the case in many rural areas: small towns and villages may be both remote from their nearest neighbour and poorly served (if at all) by public transport. In those areas this report, based on local-authority-wide measures, will tend to understate the extent of the very localised difficulties that require investment in affordable rural housing schemes.

To illustrate the potential impact of mobility in easing affordability in large cities analysis of the IHM in London took an alternative approach. This assumed that the younger working households in London could move to a contiguous borough (or district) if there were cheaper housing in that area. The results from this analysis are significantly different to those examining households’ capacity to purchase only within their current locality.

Hammersmith & Fulham is the least affordable area in terms of the proportion of younger working households able to buy at lowest quarter house prices. However, if those households are able and willing to move to the cheaper contiguous borough of Hounslow their prospects of buying are significantly enhanced. On that basis Hammersmith & Fulham slips to 17th place in the affordability rankings in London.

Similarly, Camden is the second least affordable area for younger working households. However, if they can move to next-door Haringey their prospects of buying improve to the extent that Camden slips to 23rd place in the affordability rankings in London.

Conversely residents in some of the (relatively) cheaper areas in London cannot improve their housing prospects in this way as they are bordered by more expensive boroughs. For example, Barking & Dagenham, ranked only 26th in London on the basis of the ability of working households to buy locally, moves up to 11th if account is taken of the potential for households to move to cheaper contiguous areas.

However, under this measure, the least affordable areas in London are those where neighbouring areas are only marginally cheaper. On this basis the least affordable area in London is Brent, even after taking account of the potential for moving to slightly cheaper Haringey. Similarly Waltham Forest becomes the second least affordable area in London, taking account of the potential for moving to Hackney and Newham.

Taking London as a whole, some 46 per cent of younger working households could still not afford to buy at lower quarter house prices even if they were able to move to a cheaper contiguous area, compared with 56 per cent who could not afford to buy locally. Similarly, some 36 per cent could not afford to buy at even lowest decile prices by moving to a cheaper neighbouring area, compared with 45% that could not afford to buy at those prices locally. In other words, even assuming this degree of mobility, affordability in London remains highly problematic.

About the project

The study was undertaken by Professor Steve Wilcox of the Centre for Housing Policy, University of York. It broadly follows, but refines, the 2002, 2003 and 2004 analyses previously undertaken for the JRF. It draws on Survey of Mortgage Lender house price data, and Expenditure and Food Survey, Labour Force Survey and New Earnings Survey data to compute local household incomes.

For more information

The full report, The geography of affordable and unaffordable housing: And the ability of younger working households to become home owners by Steve Wilcox, is published by the Joseph Rowntree Foundation.