High quality affordable housing
throughout the South West of England

Affordability Gap

It is worth taking a minute to look at the problem of house prices in the UK to see how big a problem it is and how ‘affordability’ has changed in recent years.

Our home is our castle

In 2007 The Secretary of State for Communities and Local Government, Yvette Cooper, presented her Green Paper to the UK Government on the future of housing entitled ‘Homes for the future: more affordable, more sustainable’.    The opening comments reflect the importance of housing to the UK economy and the fundamental aspiration of the UK population to own their own home.

This Government believes that everyone deserves a place they can be proud to call home, at a price they can afford.  Homes are the building blocks of our communities. They affect our health, our wealth, and our opportunities for happiness. For most of us a home is the biggest asset we will ever own and the biggest investment we will ever make. And housing is critical to Britain’s future– the decisions we take today make a crucial difference to the lives of generations to come”.

However, house prices have been through a boom period in recent years which has decreased the affordability of the UK housing stock and meant that fewer people now have access to the housing market.

House Prices

Since 1974 house prices have risen from an average of just £9,930 to £200,000 in Q4 2009.  This is an increase of 1,633% in nominal terms and represents growth rates of 8.6% per year on average over this period (Callcutt, 2007).  This means that house prices have risen at nearly 3% per year in real terms since 1974.

Source: Nationwide Building Society: Real House Prices


The most common measure of affordability is the relationship between earnings and purchase price.  Obviously, the higher the multiplier then the less affordable each property is to the purchaser.

A household can be considered able to afford to buy a home if it costs 3.5 times the annual gross household income for a single earner household or 2.9 times the gross household income for dual-income households (Cambridge Centre for Housing and Planning Research, 2009).

The Callcutt Review (2007) stated that in 2001 40% of first time buyers were paying 2.3x incomes for property.  In 2006 this had moved out to 3.3x income.  In 2007 the Department for Communities and Local Government (DCLG) stated that the average house price was £210,000 which is 8 times the national average earnings which is currently £25,428 (gross) per year (Office for National Statistics).

The graphics below shows how, in the ten years to 2006, house prices increased form typically 4x earnings (yellow shading) to 8-10x earnings (red shading) and whilst there is very significant regional variation in house prices and therefore affordability the picture, nationally, is one of pronounced un-affordability and  that the average house is well beyond the average buyer.

In order to bridge this ‘affordability gap’ then the average house would need to cost £87,500.  This would require house prices to fall in value by 55%

Although house prices have reduced as a result of the financial crisis the affordability gap is still very much in place.

The Housing Market

The Housing Market is just that…a market and according to economic theory;

where there is an imbalance between supply and demand, prices will adjust until either supply increases or demand is choked off.

The UK population is continuing to grow and as such demand for houses is increasing.  The solution therefore is, in part, to increase the supply of houses. So why has this not happened?

The planning system

The answer appears to be that the supply of land required for development was not available due to the planning system.  The planning system was nationalized in 1947 in an effort to control, rather than stimulate, development after the Second World War.  It is an inherently antagonistic system which is highly politicized and heavily bureaucratic which means that it is often not able to respond in a flexible manner to changing demand.  Development of new housing is therefore constrained by this inelastic and un-responsive system.

The Barker Review (2004) examined affordability issues in the UK and surmised that supply needed to be increased significantly if increased homelessness, affordability and social division were to be avoided.  The review recommended that sweeping changes to the planning system were needed to achieve this extra supply.  Of the 36 recommendations of the report, 28 of them involved changes to the planning system.

FSH (SW) Ltd – Playing our part

We cannot hope to provide all of the houses that are needed in the UK.  We can however help keep rural communities viable and vibrant by providing small scale affordable houses where they are needed most i.e. in areas of high demand.

By working with Local Authorities, Parish Councils and local people we aim to identify where there is an un-met housing need and provide the houses that enable local people to remain local.

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