House price changes in the UK from the perspective of local and regional areas.
The UK’s housing market is one of the most volatile in the world. There are intense concerns about the problems this brings, including the issue of low-income households being priced out of the housing market. This report shows that during the most recent housing market cycle, the differences between areas in house price growth became bigger than ever. It argues that deep structural variations in the demand for housing require a different sort of policy response.
Using a new analysis of price data, the report looks at:
The research - by Ed Ferrari and Alasdair Rae, University of Sheffield
The UK housing market is highly volatile, and creates 'winners and losers'. JRF's Housing Market Taskforce is particularly concerned that housing market instability unfairly affects people living in poverty and disadvantage, and serves to widen inequalities. Volatility also affects some regions more than others and at different times during housing market cycles. This study examined the unequal geography of housing market volatility across the UK. It concluded that recent housing market cycles have led to highly unequal outcomes throughout the country. Moreover, patterns of population mobility may 'lock in' disadvantage.
High and low-demand markets both cause problems. In areas of high prices and rapid growth, low-income groups are priced out of their local area or where they need to be to find work. In low-demand areas, low and sometimes falling prices affect homeowners' ability to move elsewhere and discourage new residents from moving in.
Before the global financial crisis and housing market downturn, the main policy concern was affordability. Volatility was seen as a national problem with its roots in an unresponsive supply side: housebuilding was at a historic low despite a buoyant market. The solution was felt to be to stimulate more housebuilding throughout the country (through targets and planning reforms) and for macroeconomic policy to moderate the market's 'boom and bust' nature.
The most recent housing market cycle last around 18 years (see Figure 1). In real price terms, the previous peak was in the late 1980s and the most recent peak in 2007. This latest cycle was far longer than previous ones. Political and economic stability were important factors underpinning the growth of the housing market.
However, the length and relative stability of the most recent housing market cycle may have contributed to its eventual undoing. While it extended high growth rates to many parts of the country and further consolidated the attractiveness of owner occupation, it also priced many people out of the market. It was a time of strong market 'fundamentals' – low supply, high levels of household growth, rising wealth – but also of low-cost finance and expansive credit.
During this sustained period of market growth:
As well as the broad national picture of volatility, it is important to understand variations among and within regions. This is because certain parts of the country have become disengaged from the national market, and their experience of volatility now varies significantly (see Figure 2).
Analysis of demand-side data and house prices illuminates this. The drivers of market change at local level are not necessarily the same as those operating nationally. In particular, there are important spatial differences in the factors governing demand for housing:
In England, there have been different kinds of market intervention in low-demand areas in the north and high-demand areas in the south. In low-demand areas, housing market renewal programmes have attempted to combat wider structural changes which had undermined local housing demand. Factors such as declining population, weak local economies and poor housing stock were seen as problems requiring local intervention. In the south, the focus has been on unlocking new housing supply and providing infrastructure.
Supply-side interventions such as stimulating new housebuilding have not led to a more equitable housing market, especially in housing equity terms. No matter how areas are classified, differences among and within regions remain a stubbornly entrenched feature of the wider housing market. Overall, the study findings regarding market interventions suggest that:
The extent of connections and disconnections between areas can contribute to volatility. Deprivation also correlates closely with areas of market volatility. By exploring the nature of connections between more and less deprived areas it is possible to understand the potential for transfer of housing wealth.
There is a clear pattern whereby areas of the same type remain more closely connected. The strength of this relationship is greater in both the most and least deprived districts, suggesting that the potential for housing wealth transfer is limited. There is some evidence that both ends of the housing market spectrum are isolated from the rest of the market. This is not surprising, but it raises important policy questions which have not yet been sufficiently addressed.
The study found that some of the poorest areas exhibited little diversity in relation to their connections with other places. For example, almost three-quarters of moves from a deprived district such as Knowsley were to similarly deprived areas. These patterns were strongest among the most deprived locations, suggesting a series of disconnected local housing markets. Overall, the study’s main findings indicate that:
The analysis points to important policy implications for dealing with housing market volatility. It could be argued that there are new areas of volatility which need to be recognised and that contemporary policies are not always sufficiently spatially aware of such areas. Specifically, it is suggested that:
The researchers analysed a range of secondary data sources and undertook new analyses of postcoded data on house prices from the JRF Housing and Neighbourhoods Monitor and estimates of population mobility from the NHS central register.