Affordability differences by area for working households buying their homes

Steve Wilcox

An analysis by local authority of the difficulties facing some working households in becoming home owners.

This report includes a new local analysis of the difficulties that working households faced in becoming home owners throughout England in 2002. The report analyses the capacity of working households aged 20 to 39 to purchase at the lower end of the housing market.

The primary analyses are based on a consistent measure of house prices for 4/5-room dwellings in each area, against local household earned incomes computed from local Census, Labour Force Survey and New Earnings Survey data. A further set of analyses measure the capacity of identified key workers to purchase at the lower end of the housing market in each area. Detailed schedules show the house prices, household incomes and affordability measures for every local authority area.

The analysis is the first to make use of newly available local New Earnings Survey data based on place of residence, rather than place of work. This captures the impact of commuting, which is particularly important for London and the South East. However, the new analyses show that affordability issues for working households are more acute in the South West than the South East. This has important implications for government policy on the distribution of funding for new affordable housing.

Summary

Summary

This study comprises three complementary analyses that demonstrate the local difficulties working households face in accessing home ownership in every local authority area in England. The study, by Steve Wilcox at the University of York, is based on local prices for four/five-room dwellings at the end of 2002. It includes residence-based data from the New Earnings Survey not previously available. The results challenge prevailing assumptions and policies.

  • The ratio of house price to household income for working households (aged between 20 and 39) exceeds five to one in thirty-three local authority areas in England. The highest ratios are in Westminster, Camden, Islington, Kensington & Chelsea, Hackney and Purbeck in Dorset.
  • Fewer than one in five working households can afford to buy properties at the lower quartile of house prices in nineteen authorities. The least affordable areas are Westminster, Purbeck, Camden, Hammersmith & Fulham, Islington and North Devon.
  • Access to home ownership is most difficult in London, with house price to household income ratios below four to one in only three authorities: City of London, Barking & Dagenham and Merton. Only in six areas can more than thirty per cent of all working households afford to buy at lower quartile house prices.
  • Outside London, access to home ownership is more difficult in the South West Region than in the South East. The house price to household income ratio exceeds five to one in twelve areas in the South West, in one area in the South East, and in four areas in the East Region. Fewer than one in five working households can afford to buy in nine areas of the South West, but in only two areas in the South East and East Regions.
  • Affordability issues for key workers, however, are most acute in London and the South East. This is because their earnings are based on national pay scales, and London and other related salary supplements are insufficient to offset the higher housing costs in those areas. In forty-six areas, even a key worker couple with two incomes could not afford to buy at lower quartile house prices.

Background

This study comprises three separate but related analyses to provide consistent measures of the relative difficulties working households face in securing access to home ownership in each local authority in England. It is based on house prices for four/five-room dwellings in each area in the fourth quartile of 2002. It makes use of newly available residence-based local earnings data to calculate local household incomes for all working households with a household representative aged between 20 and 39.

The three analyses are:

  • The ratios analysis. This computes house price to income ratios for every local authority in England. These are based on average house prices for four/five-room dwellings, and average household incomes for working households.
  • The access analysis. This computes the proportion of working households in each local authority that would be unable to purchase a local four/five-room dwelling based on lower quartile prices.
  • The key worker analysis. This identifies those local authorities where specified key workers would be unable to purchase a local four/five-room property based on lower quartile prices.

The ratios analysis

The average ratio of house price to income in England was 3.4 to 1, while regional average ratios range from 4.8 to 1 in London to just 2.3 to 1 in the North East Region.

It is of particular note that house price to income ratios are higher in the South West than in the South East. The average ratio in the South West is 4.2 to 1, while in the South East it is just 4.0 to 1. This is despite the average house price in the South East (£152,555) being 22.5% higher than that in the South West (£124,508).

However, the differential between the incomes of working households in the two regions are greater still. The average income of working households in the South East (£38,478) is 29.9% higher than that in the South West (£29,626). The forty individual areas with the highest ratios are ranked in Table 1.

Table 1: Authorities with the highest house price to income ratios
Authority Region 2002 prices for 4/5 room dwellings £ working household incomes £ house price to income ration
1. Westminster Lon 448,382 56,625 7.92
2. Camden Lon 439,968 62,061 7.09
3. Islington Lon 329,198 47,360 6.95
4. Kensington & Chelsea Lon 617,433 98,553 6.26
5. Hackney Lon 203,570 34,902 5.83
6. Purbeck* SW 151,386 27,154 5.58
7. Richmond Upon Thames Lon 303,997 54,716 5.56
8. Ealing Lon 233,428 42,587 5.48
9. Haringey Lon 207,884 38,153 5.45
10. East Dorset SW 176,639 32,440 5.45
11. Hillingdon Lon 193,556 35,681 5.42
12. Harrow Lon 205,974 38,437 5.36
13. Epsom & Ewell SE 203,895 38,177 5.34
14. Three Rivers East 205,715 38,861 5.29
15. Tower Hamlets Lon 233,415 44,260 5.27
16. Hounslow Lon 207,868 39,512 5.26
17. Cotswold SW 166,013 31,641 5.25
18. Southwark Lon 202,909 38,710 5.24
19. Hertsmere East 191,924 36,796 5.22
20. Torbay SW 115,953 22,293 5.20
21. North Cornwall* SW 120,835 23,347 5.18
22. Salisbury SW 152,723 29,612 5.16
23. Welwyn Hatfield East 172,890 33,558 5.15
24. Lambeth Lon 212,974 41,695 5.11
25. North Devon SW 117,723 23,082 5.10
26. West Dorset SW 139,340 27,427 5.08
27. Bournemouth SW 145,507 28,645 5.08
28. Poole SW 152,292 30,081 5.06
29. Brent Lon 209,742 41,465 5.06
30. Barnet Lon 226,881 45,010 5.04
31. Torridge* SW 107,415 21,323 5.04
32. Cambridge East 159,048 31,608 5.03
33. Carrick SW 123,590 24,679 5.01
34. Runnymede SE 206,377 41,643 4.96
35. Oxford SE 178,220 36,287 4.91
36. Gloucester SW 128,754 26,255 4.90
37. North Dorset SW 135,809 27,891 4.87
38. Weymouth & Portland SW 117,926 24,245 4.86
39. South Bucks SE 231,833 48,068 4.82
40. Penwith* SW 110,547 22,961 4.82

* Note: The sample sizes for these authorities are particularly small, and the results should therefore be treated with caution

The access analysis

The access analysis essentially relies on the same data sources as the ratios analysis. However, it uses lower quartile house price figures rather than the mean prices used in the ratios analysis.

It provides a measure of the numbers and proportions of households that would be unable to purchase a four/five-room dwelling at the lowest price quartile. This provides a consistent relative measure of the difficulty in accessing home ownership in every local authority area in England.

The analysis assumes a maximum mortgage of three times household income for the working households with one representative in the 20-39 age bracket. This is based on long-standing lender conventions. A case could be made for assuming a slightly higher mortgage to income lender ratio, given the decline in interest rates. However, the 3 to 1 assumption is still significantly higher than the average for first-time buyers in 2001, which was just 2.3 to 1.

It should be recognised that a further proportion of working households would be able to purchase dwellings with prices below the lower quartile level for four/five-room dwellings. In many cases these would be smaller properties. Additionally, some households will be able to purchase where they can use significant savings to supplement their mortgage. The access calculations assume a deposit of only five per cent, roundly based on the lower quartile figure for deposits by first-time buyers.

If the analysis does not then provide an absolute measure of working households unable to purchase in any circumstances, it does provide a consistent measure of the relative difficulty of accessing even the lower end of the housing market. Table 2 shows the top forty authorities ranked by the proportion of working households unable to purchase. While many of the high-ranking authorities in the ratios analysis also have high ranking in the access analysis, there are some marked differences. These reflect variations in the distribution of house prices and incomes within each area.

Table 2: Authorities with the highest proportion of households unable to purchase a home in the lowest price quartile
Authority Region Lowest quartile house price £ Adults in employment in each household households unable to purchase by number of working adults    
      One Two or more One Two or more All All (%)
1. Westminster Lon 310,482 15,574 11,090 15,129 8,872 24,001 90.0
2. Purbeck* SW 122,153 1,373 2,152 1,263 1,894 3,157 89.6
3. Camden Lon 314,740 15,696 10,970 14,715 8,685 23,400 87.8
4. Hamersmith & Fulham Lon 283,235 14,515 13,064 13,644 10,016 23,660 85.8
5. Islington Lon 239,616 14,062 10,877 13,039 8,306 21,345 85.6
6. North Devon* SW 96,240 3,353 4,297 3,148 3,245 6,392 83.6
7. Brent Lon 165,220 13,150 13,526 12,474 9,816 22,290 83.6
8. East Dorset SW 139,331 2,165 3,531 2,027 2,705 4,731 83.1
9. Runnymede SE 173,438 3,379 4,349 3,229 3,189 6,418 83.0
10. Penwith* SW 89,342 2,121 2,560 2,025 1,862 3,886 83.0
11. Harrow Lon 172,419 8,354 11,944 8,175 8,361 16,536 81.5
12. West Dorset SW 115,374 2,721 4,291 2,603 3,078 5,681 81.0
13. Salisbury SW 127,931 4,564 7,002 4,189 5,180 9,368 81.0
14. North Cornwall* SW 92,871 2,817 3,657 2,504 2,709 5,213 80.5
15. South Hams SW 109,559 3,206 3,695 2,859 2,696 5,556 80.5
16. Bournemouth SW 121,598 12,158 14,133 11,363 9,774 21,137 80.4
17. Three Rivers East 162,426 3,994 4,558 3,674 3,191 6,865 80.3
18. Hackney Lon 156,047 14,125 10,279 13,197 6,377 19,575 80.2
19. Hertsmere East 157,384 4,712 5,711 4,445 3,879 8,324 79.9
20. Ealing Lon 173,806 14,510 18,087 13,681 12,329 26,010 79.8
21. Kensington & Chelsea Lon 425,475 15,390 9,203 13,067 6,512 19,579 79.6
22. Lambeth Lon 155,292 22,999 19,142 21,155 12,357 33,513 79.5
23. South Bucks SE 174,712 2,774 3,414 2,503 2,415 4,918 79.5
24. Cotswold SW 135,300 3,743 4,252 3,410 2,929 6,339 79.3
25. Epsom & Ewell SE 164,082 2,657 3,176 2,362 2,258 4,620 79.2
26. Barnet Lon 179,676 15,064 16,147 13,809 10,765 24,573 78.7
27. Torbay SW 90,637 7,721 6,354 7,258 3,812 11,070 78.7
28. Hillingdon Lon 156,192 11,167 15,719 11,012 10,115 21,127 78.6
29. Weymouth & Portland SW 96,207 2,414 3,573 2,272 2,417 4,689 78.3
30. Guildford SE 167,361 5,869 7,137 5,210 4,952 10,162 78.1
31. Sutton Lon 149,666 8,641 11,123 8,283 7,134 15,418 78.0
32. North Dorset SW 109,625 1,852 2,718 1,693 1,864 3,557 77.8
33. Richmond Upon Thames Lon 220,438 9,082 10,487 8,429 6,782 15,211 77.7
34. Cambridge East 131,887 7,056 6,675 6,392 4,241 10,632 77.4
35. Elmbridge SE 181,923 5,352 5,627 4,587 3,885 8,473 77.2
36. Welwyn Hatfield East 138,795 5,166 6,429 4,723 4,225 8,948 77.2
37. St. Albans East 173,267 6,937 8,895 6,046 6,120 12,166 76.8
38. Carrick SW 98,526 3,003 4,003 2,863 2,514 5,377 76.7
39. Woking SE 159,534 4,508 5,600 3,902 3,845 7,747 76.6
40. Poole SW 121,500 5,619 9,014 5,089 6,123 11,212 76.6

 * Note: The sample sizes for these authorities are particularly small, and the results should therefore be treated with caution.

Implications of ratios and access analyses

These findings contrast with the assertion in the government's recent sustainable communities report (Sustainable communities: Building for the future) that affordability issues are more acute in the South East than the South West. However, the analyses in that report were based on Land Registry house price data, which reflect the much smaller proportion of small dwellings in the South East compared to London and the South West.

The sustainable communities analysis was also based on regional earnings data based on the place of work. This therefore fails to take account of the impact of the predominantly high earners who commute into London from the South East. Place of work earnings figures exaggerate the average earned incomes of individuals residing in London, while at the same time substantially underestimating the earned incomes of individuals living in the South East and the East.

The use of newly available earnings data based on the place of residence (used in this study), rather than the conventional place of work based data, thus has a significant impact on the resulting regional ratios of house prices to earnings.

It follows from these new analyses that there is a strong case for reviewing the Office of the Deputy Prime Minister's sustainable communities policy to focus a significant measure of growth in the provision of new affordable housing on London and the 'wider south east', leaving investment in the rest of England, including the South West, to mark time with inflation.

The key worker analysis

This analysis focuses on the ability of identified key workers in the public sector to access the local home ownership market. As with the 'access' analysis above, this is defined in terms of whether or not their incomes are sufficient to purchase a four/five-room dwelling at lower quartile prices. The analysis also shows the extent to which key workers' incomes fall short of, or exceed, the level required for such a purchase.

Four key worker cases are analysed: nurse, police officer, social worker and teacher. In each case, a point on the salary scale has been selected to correspond with a key worker who has been in post for three to four years and may be sufficiently settled to consider house purchase. The basic salaries have been supplemented, as appropriate, with London and South East weighting allowances, or other equivalent supplements, for those localities where they apply (based on the rates in October 2002).

Basic salaries are £18,870 for a nurse, £19,776 for a social worker, £22,992 for a police officer and £23,835 for a teacher. Inner London weightings and related salary supplements range from £2,751 for a social worker to £6,165 for a policeman. Supplements for selected areas outside London range from £462 to £2,000.

The forty areas where, on this basis, key workers' incomes fall furthest below the level required to purchase a four/five-room dwelling at local lower quartile prices are shown in Table 3. These are ranked on the basis of a composite index, which is a simple unweighted average of the four selected cases.

Table 2: Authorities with the highest proportion of households unable to purchase a home in the lowest price quartile
Authority Region 2002 price, Q4, £ Income required to purchase £ Income of key workers as a percentage of income required to purchase
        Teacher % Police officer % Social worker % Nurse % Average case %
1. Kensington & Chelsea Lon 424,475 134,734 20.0 21.6 16.7 17.0 18.8
2. Camden Lon 314,740 99,668 27.0 29.3 22.6 23.0 25.5
3. Westminster Lon 310,482 98,319 27.4 29.7 22.9 23.3 25.8
4. Hammersmith & Fulham Lon 283,235 89,691 30.0 32.5 25.1 25.6 28.3
5. City of London Lon 239,616 75,879 35.5 38.4 28.0 30.3 33.0
6. Islington Lon 239,616 75,878 35.5 38.4 29.7 30.3 33.5
7. Richmond Upon Thames Lon 220,438 69,805 37.1 41.8 30.4 31.9 35.3
8. Wandsworth Lon 213,467 67,598 39.9 43.1 33.3 34.0 37.6
9. Mole Valley SE 179,903 56,969 43.2 43.9 35.5 34.1 39.2
10. Windsor & Maidenhead SE 179,229 56,756 43.4 44.0 35.7 35.5 39.6
11. Elmbridge SE 181,923 57,609 42.7 43.4 35.5 38.6 40.1
12. South Bucks SE 174,712 55,326 44.5 45.2 36.9 35.1 40.4
13. Runnymede SE 173,438 54,922 44.8 45.5 36.8 35.4 40.6
14. St. Albans East 173,267 54,868 44.9 45.5 36.9 36.7 41.0
15. Guildford SE 167,361 52,998 46.5 47.2 38,2 36.7 42.1
16. Waverley SE 166,941 52,865 46.6 47.3 38.3 36.8 42.2
17. Kingston upon Thames Lon 181,946 57,616 44.9 50.6 36.9 38.6 42.8
18. Chiltern SE 163,840 51,883 47.5 48.2 39.0 37.5 43.0
19. Epson & Ewell SE 164,082 51,959 47.4 48.1 39.3 37.4 43.1
20. Surrey Heath SE 163,624 51,814 47.5 48.2 39.1 37.5 43.1
21. Barnet Lon 179,676 56,897 45.5 51.2 37.3 39.1 43.3
22. Hart SE 158,569 50,214 47.5 47.8 39.4 38.7 43.3
23. Wokingham SE 159,045 50,364 47.3 49.6 39.3 38.6 43.7
24. Three Rivers East 162,426 51,435 47.9 48.6 39.7 39.2 43.8
25. Woking SE 159,534 50,519 48.7 49.5 40.1 38.5 44.2
26. Harrow Lon 172,419 54,599 47.4 53.4 38.9 40.8 45.1
27. Spelthome SE 161,708 51,208 48.1 48.8 39.9 43.5 45.1
28. Ealing Lon 173,806 55,038 48.9 53.0 38.6 40.4 45.2
29. Hertsmere East 157,384 49,838 49.4 50.1 41.0 40.4 45.3
30. Winchester SE 146,616 46,428 51.3 51.7 42.6 41.9 46.9
31. West Berkshire SE 147,184 46,608 51.1 53.6 42.4 41.7 47.2
32. Reigate & Banstead SE 149,369 47,300 52.1 52.8 43.2 41.1 47.3
33. Brent Lon 165,220 52,320 51.5 55.7 40.6 42.5 47.6
34. Wycombe SE 145,746 46,153 51.6 54.2 42.8 42.1 47.7
35. Oxford SE 145,321 46,018 51.8 54.3 43.0 42.3 47.8
36. Horsham SE 142,499 45,125 52.8 53.2 43.8 43.1 48.2
37. Sevenoaks SE 145,766 46,159 53.4 54.1 43.8 42.1 48.4
38. East Dorset SW 139,331 44,121 54.0 52.1 44.8 43.0 48.5
39. Tandridge SE 145,162 45,968 53.6 54.5 44.0 42.3 48.6
40. Epping Forest East 146,131 46,275 53.2 54.0 44.2 43.5 48.7

The results show that the most acute affordability issues for key workers are in London, notwithstanding the provision of London weighting and related payments. London accounts for the first eight authorities with the greatest shortfall against the incomes required to purchase at lower quartile prices. The next four authorities are in the South East.

Overall, twelve of the top-ranked authorities are in London, twenty-two are in the South East, four are in the Eastern Region, and just one is in the South West. The results here are in marked contrast to those for the wider population of working households, where the affordability issues have been seen to be greater in the South West than in the South East.

The critical factor is that there is very little difference in the salaries of key workers outside London, for instance between the South East and the South West. The 'fringe' area supplements to national scale rates paid outside London are relatively modest as a proportion of total salaries, and are not sufficient to offset the differences in house prices between different areas.

It should also be noted that in the forty-six authorities with the greatest shortfalls, the average incomes of our selected key workers do not even reach half (fifty per cent) of the level required to purchase a four/five-room dwelling at local lower quartile prices. It follows that, in those areas, even a dual earner key worker couple would still not have a sufficient income to purchase.

About the project

The study was undertaken by Professor Steve Wilcox of the Centre for Housing Policy at the University of York. It draws on house price data from Halifax Plc, and on data from the Government's Family Expenditure Survey, Census, Labour Force Survey and New Earnings Survey, to compute local household incomes. Earlier work in developing the methodology, and exploring the issues around the availability and limitations of different data sets that could be potentially used in the analysis, was funded by the Association of London Government.

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