50-year decline in housing affordability

The BBC website has a summary of the key points in a report issued by the Halifax about the housing market over the last 50 years. The main headline is that houses have become less affordable, with the average annual price rise of 2.7% outstripping the 2% annual rise in incomes over the period. There have been 4 periods of boom in house prices: 1971-73, 1977-80, 1985-89, and 1998-2007, with the greatest acceleration in the last decade. In 1959 the average house cost £2,507 (compared with an average price in December 2009 of £162,103 according to Nationwide Building Society) and about 14% of them did not have an indoor toilet (compared with 0.2% in 1996). In 1967 22% of houses did not have a basic hot water supply, and built-in central heating was a rare facility.

One of the most significant changes to the market happened in the 1980’s following the Conservative government’s Right to Buy policy – in 1961 only 43% of homes were owner-occupied but by 2008 that had risen to 68%. The proportion of privately rented accommodation fell over the same period from 33% to 14%, although it has now risen again towards 20%, perhaps due to the increase in numbers of students needing accommodation. However another significant change is down to the increase in single-person households, as the proportion of households that were occupied by just one person rose from 19% in 1971 to 33% in 2009. This adds great pressure to the first-time buyer market, particularly as the rate at which houses are constructed had fallen dramatically even before the recession, although the Council of Mortgage Lenders (CML) has said that the proportion of the average first-time borrower’s income spent on mortgage interest payments dropped in November 2009 to its lowest level for six years, at 14.4%. This may appear at odds with the initial headline about affordability – except that lenders are now typically requiring those buyers to find a deposit of 25% before they will consider making a mortgage offer to them.