Affordable housing further out of reach, says KPMG

Affordable housing further out of reach

KPMG research shows gap between house prices and wages so wide a London first time buyer needs a wage of £76,971 to get on the property ladder, with the average wage just £27,999

Also on KPMG.com

  • The minimum income the average first time buyer would need to buy a home is now £77,000 in London and £41,000 UK-wide*
  • 69% of people feel that there is not enough affordable housing in the UK, and 30% are concerned about affording their home, whether through ownership or rent
  • Some 72% of 16-17 year olds want to buy within ten years but the housing crisis means prices are only set to rise
  • Some 58% of people agree that owning property helps save for retirement
  • Affordability is now an issue for all but above average earners and those inheriting
  • A long-term, apolitical housing strategy is needed to tackle the housing crisis

Research from KPMG shows that the divergence between house prices and wages has grown so wide, that a first time buyer in London would need an annual wage of £76,971 to get onto the property ladder, with the actual average annual wage in the capital at just £27,999. The UK-wide annual wage needed is £40,553, against the actual average annual wage of £22,044. These figures are based on a 10% deposit and borrowing the remaining 90% at a loan to income ratio of 4.5.

Figures vary widely between the South and North, with the gap between actual and required annual wage being much narrower in the North, and in Scotland and Northern Ireland. The full table of regional statistics below shows that in the South East a first time buyer would need an annual wage of £46,010, against the actual average annual wage of £24,391. Northern Ireland sees the smallest gap with the actual average wage at £18,857 against the £21,219 needed; in England the narrowest gap is in the North East with £20,149 against £23,616. However, there is a substantial gap in every UK region between the actual and required wages needed, creating an environment where only those earning over the average can afford to buy.

But it’s not just home ownership that’s the issue – a KPMG-commissioned poll has revealed that some 69% of people feel there is not enough housing in the UK that is affordable, with 30% concerned about how they will afford or continue to afford their own home or pay their rent. And it seems these concerns about affording a home are hitting the younger generation the hardest, with that figure rising to 57% for 16-17 year olds and 52% for 18-24 year olds.

While this affordability gap is creating real issues for a vast swathe of the population, a secondary impact is on the business world and wider economy, with access to housing, especially in the South and bigger cities, potentially a barrier to attracting talent.

And yet, despite the growing divergence between prices and wages, and the nation’s concerns about affordability, the poll showed that we’re still a country of wannabe homeowners, with 73% of people saying they’d prefer to buy than rent.

And despite being the group with the highest levels of concern over affordability, the next generation of buyers are no different, with 72% of 16-17 year olds saying they want to be on the property ladder within ten years; 36% of those are even more hopeful, with a deadline of five years. With house prices and wages set to continue their divergence, the £76,971 annual wage needed in London, just like the £29,079 needed in the West Midlands and the £35,841 in the South West, will have increased further out of reach of the average 21 year old.

A potential reason for this desire to buy is revealed by the 58% of people who agree that owning property helps save for retirement showing that, for many, investing in a home has become a de facto pension pot.

This jarring between aspiration, fears and reality is yet another example of the need to find a long-term solution to the current housing crisis. Jan Crosby, Head of Housing at KPMG, commented:

“These figures make for frightening reading and show that housing affordability is no longer just a problem for lower wage earners. Now unless you earn well above average or receive an inheritance, it is unlikely you will be afford to buy, no matter where in the UK you live.

“And yet this isn’t just about home ownership, because our findings show genuine concern over wider affordability of housing, whether buying or renting. Being able to live in a stable home is a basic human need, tied up with important feelings of choice and certainty,  and we are living in a world now where only a few can hope for that, which cannot be right.

“Last year we worked with Shelter to publish a blueprint for the next Government to tackle the housing crisis once and for all. That report looked in-depth and cross-tenure, and these latest figures are a sure indication that more needs to be done. Politicians need to develop an apolitical, long-term housing strategy, engaging both the public and private sectors, to get the UK building and stabilise our housing market. Reforms must be wide-spread: further unlocking public sector land banks, boosting small and self-builders, giving power to towns and cities to build the homes they need, and increasing investment in affordable homes are some of the ways government can match businesses’ commitment to achieve this.

“With the Election a week away, we again call on the next Government to act decisively on housing so that people’s basic housing needs and their longer-term aspirations can be met, whatever they might be.”

Digging deeper into the issue of affordability, while 69% of people agree there isn’t enough affordable housing in the UK, that figure rises to 77% for over 55s. When contrasted again with the divergence growth between house prices and wages between 1985 and 2015, it seems the older generation can remember a time when housing was much more affordable, whereas unaffordability of housing has become the norm for today’s aspiring buyers.

However, respondents across age groups were clear more needed to be done to help young people onto the property ladder, with an average of 45% in agreement and only around 10% difference between the lowest and highest scoring groups.

Summary findings and the full KPMG/Shelter ‘Building the Homes We Need’ report can be found on a dedicated website at http://www.thehomesweneed.org.uk/.

*All of the incomes stated are minimum incomes and are based on putting together a 10% deposit

 Region

Average House Price for first time buyers

ONS figures 2014

Current median annual wage (ftb)

ONS ASHE 2014

Required average annual wage (ftb)

At present

UK £202,765  £22,044  £40,553 
London £384,856  £27,999  £76,971 
South East £230,049  £24,391  £46,010 
South West £179,204  £20,690  £35,841 
East Midlands £136,366 £20,890  £27,273 
East of England £180,331  £23,271  £40,074 
 est Midlands £145,394  £20,431  £29,079 
North East £118,081  £20,149  £23,616 
North West £131,977  £20,723  £26,395 
Yorkshire and Humberside £132,143  £20,223  £26,429 
Wales £129,546  £20,021  £25,909 
Scotland £133,938  £21,770  £26,788 
Northern Ireland £106,094 £18,857 £21,219

 

-ENDS-



Notes to Editors:

Methodology

Poll data: KPMG commissioned an online survey from independent agency, Red Dot. The survey targeted 10,000 nationally representative people across the UK, including a larger sample of 16-17 year olds.

Statistical data: The statistical data on average first time buyer house prices, mean annual wages and required annual wages was collated by KPMG’s in-house economics team. The house price data came from ONS, as did the annual earnings data (found in the Annual Survey of Hours and Earnings) – both sets used were 2014 data to be comparable. These two data sets were analysed to understand the divergence over thirty years UK-wide and regionally. Then using a 10% deposit figure and a loan to income ratio of 4.5 (which is the upper threshold at which 85% of mortgages are given, cited by the Bank of England), the required annual wage of a first time buyer was calculated UK-wide and regionally.

 

For media enquiries please contact:

Frances Herman-Squance

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E: frances.herman-squance@kpmg.co.uk

KPMG Press office: +44 (0) 207 694 8773

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About KPMG

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff.  The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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