•  
  •  
  •  
  •  
  •  
  •  

This article was originally posted on PwC.

It is no secret that the UK’s housing market is becoming increasingly unaffordable. The chronic undersupply of housing over the past few decades, coupled with increasing demand, has seen house price growth far exceed the rate of earnings growth. This has been felt the hardest in London, where the ratio of house price to median earnings has increased from 9.0 in 2006 to 13.5 2016. [1]

Recognising this, the Government’s recent White Paper concluded that the UK needs to build 250,000 new homes a year, up from the recent average of 190,000 per year. [2]

To understand what this would mean we have used our house price model to simulate the potential impact on prices.

In our base case, we predict housing completions will gradually rise to 216,000 by 2020 and average prices will reach £302,000 by 2025. Upping building levels to 250,000 per year is simulated to reduce house prices, but only by around £5,000 by 2025.

House price projections in our main scenario and additional building scenario

Year House prices, base case House prices, 250k house building scenario Difference
2016 (Actual) £212,000 £212,000 N/A
2017 £220,000 £220,000 No change*
2018 £228,000 £228,000 No change*
2019 £237,000 £237,000 No change*
2020 £247,000 £246,000 £1,000
2021 £258,000 £256,000 £2,000
2022 £268,000 £266,000 £2,000
2023 £279,000 £276,000 £3,000
2024 £290,000 £287,000 £3,000
2025 £302,000 £297,000 £5,000

*No change after rounding to nearest £000

Source: PwC analysis using the ONS house price index and DCLG net supply of housing

With the UK building too few houses for the last 40 years, our analysis suggests that just achieving par building levels for 7-8 years may not be enough to solve the affordability crisis. We may therefore see the continuation of demand side measures like Help to Buy and Lifetime ISAs in order to help first time buyers overcome the affordability.

For more housing market analysis please see PwC’s latest UK Economic Outlook report.

 

Richard Snook is the leading housing economist at PwC in the UK and will be speaking at MIPIM UK this October.

 See the full programme here

 

[1] ONS (2017), ‘Ratio of house price to residence-based earnings (lower quartile and median), 2002 to 2016’

[2] DCLG (2017), “Fixing our broken housing market”

 

Top photo ©  jhorrocks/GettyImages


  •  
  •  
  •  
  •  
  •  
  •  

About Author

Richard Snook

Richard Snook is the leading housing economist at PwC in the UK

Comments are closed.