Housing stock rises to £7.14tn

UK housing wealth exceeds £7 trillion for the first time.

Increasing in value by over a third in a decade, the value of all UK housing now stands at £7.14tn.

The combination of historically low-interest rates and an array of demand-side policy from the government including help-to-buy, buy-to-rent and right-to-buy contributed to the majority of the increase in the value of housing stock with just 19 percent of the growth coming from increased supply.

With the increasing value of housing being led by price and not quantity the question of affordability becomes increasingly important.

Ian Mulheirn, director of consulting at Oxford Economics say that housing affordability is not an issue.

Mulheirn states that the cost of housing relative to real wages has not changed in the last decade, even in London.

Increases in the number of households have been outstripped by increases in housing by an average of 26,000 per year since 1996.

He correctly explains that part of the perception of the housing problem comes from systematic overestimation of the growth of new households.

While the cost of like-for-like housing relative to real incomes hasn’t changed significantly there is a growing body of evidence that under-45s live in lower quality housing than before with the amount of usable floor space per resident falling consistently in the past decade.

Home ownership has too become increasingly unaffordable: those under 45 have seen house ownership fall by around 900,000 since 2010.

Part of this problem is that the average incomes of young people have not grown as quickly as the average since the financial crisis. Therefore, while the average person has seen no change in the affordability of buying or renting housing, young people have.

The highest earning decile (who are on average older) in the UK have seen their housing costs fall by over £1,000 a year since the financial crisis while the lowest earning decile have seen housing costs increase by over £500 on average.

There is no lack of economists who will call upon the government to address housing affordability with housebuilding.

However, while building houses will help alleviate the cost of housing in the long-run it will not be an effective policy to reduce the cost of housing quickly, for that it seems there are no easy solutions.


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January 2021
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