"The narrative on home building needs to move beyond headline numbers and focus on the types and tenures of new homes that are needed to support economic growth and improve access to home ownership"
- Richard Donnell - Zoopla
New research by Zoopla has found that as many as 40% of working households cannot afford an average-priced two or three-bed home with an 80% loan-to-value mortgage.
The research assesses the affordability of housing to rent and buy for working households across Great Britain. The report identifies structural factors that generate higher home values and worse affordability outcomes alongside the implications for the Government on how to improve affordability and the types and tenures of new homes required in future.
Three-quarters of workers in London cannot afford to purchase a property
Access to homeownership is a major challenge for workers across southern England more so than the rest of Britain, largely due to higher house prices. The report finds that 74% of workers living in London are unable to afford to buy an average-priced two or three bed home. More than half of workers (58%) are unable to buy across southern England (South East, South West and East of England). Across the rest of Britain, access to homeownership is better but the study finds that 20-30% of workers on the lowest incomes are unable to buy.
Restricted access to home ownership in unaffordable markets has major implications for labour mobility and attracting inward investment to support economic growth. The main levers to improve affordability are to use a larger deposit or buy a smaller, lower-priced home but the report finds these deliver modest benefits improving access to home ownership.
House prices rising more slowly than income growth is another option but this takes years to shift buying power and improve access to housing.
Growing pockets of unaffordability across several cities outside southern England
The study also finds that the affordability of home ownership is becoming more challenging across a growing number of regional cities outside southern England as growth in jobs and incomes has pushed both house prices and rents higher.
In York 61% of workers are unable to buy a two or three-bed home, followed by 57% in Trafford, Greater Manchester, 46% in Leicester and 45% in Edinburgh. In total, there are 18 local authorities outside of southern England where more than 40% of workers are unable to buy.
Single-earner households at a major financial disadvantage
The study also explores the affordability of housing for single earners with 57% unable to buy, assuming they buy an average-priced two or three bed home at the lower end of the market (lower quartile price). The unaffordability of home ownership is worse across all regions of Great Britain compared to an average multi earner working household.
Bank of England data for new mortgage lending (MLAR statistics) shows the proportion of single earners buying homes with a mortgage has fallen from 45% in 2007 to 32% today highlighting the squeeze on single-earner households.
The knock-on effect on the rental market
The unaffordability of home ownership is compounding the pressure on the private rented sector where the total number of rented homes has been broadly static since 2016. The growth in average rents (for new lets) has outpaced house prices since the start of the pandemic (March 2020). House price growth has been below the UK average across London and southern England as affordability constraints reduce demand and restrict house price increases. In contrast, house prices have grown faster in markets where more workers are priced into the market to buy.
The study finds that, at a national level, just 27% of full-time workers are unable to afford private rental costs compared to a higher level of 40% for buying. Renting is most unaffordable in London where 67% of workers living in London can't afford the rent for two or three-bed homes, with just under a third (32%) of workers unable to afford rent across southern England.
How can the affordability of buying be improved?
Working households have a finite number of options to improve affordability. The first is to buy or rent a smaller-sized home subject to how much space is required or to use a larger deposit. Spending more income on renting is the main option for renters.
Buying smaller homes has limited benefits compounded by a scarcity of smaller-sized homes to buy. There is growing pressure on buyers to put down larger deposits to reduce the size of the loan required. The average first-time buyer deposit was 33% in London in 2023 compared to a UK average of 20% (Source: ONS).
However, using a 33% deposit to buy a two or three-bed home priced at the lower end of the market improves access and would get an additional 7% of working households priced into buying a home. The greatest benefits are felt in southern England.
Richard Donnell, Executive Director at Zoopla said: “The unaffordability of home ownership is a real risk to labour mobility and growing housing supply, particularly in southern England where more than half of full time workers are unable to buy an average priced home. The more people that are priced out of buying, the greater the pressure on the rental sector where rents have risen faster than house prices since the pandemic.
“Our analysis has important implications for the type and tenure of homes that need to be built over the next five years. The narrative on home building needs to move beyond headline numbers and focus on the types and tenures of new homes that are needed to support economic growth and improve access to home ownership.
"There is no simple one-size-fits-all approach, the types of homes that are needed vary across the country. Increasing the number of social and private rented homes that are built is a key pillar in easing pressures across the housing market.”
