Housing: trends in prices, costs and tenure

Abstract

Executive summary• House prices have risen in real terms over time but have also been subject to some strong swings. According to the Nationwide index, real average house prices trebled between 1995-96 and 2007-08. In part, this represented a recovery following a fall of 40% during the early 1990s. However, by 2007-08, real house prices were 77% higher than their previous peak in 1989. They then fell by almost a quarter between 2007-08 and 2012-13, before starting to grow again from 2013-14. In 2014Q4, they remained 17% below their 2007Q3 peak.• In London, house prices grew faster than in the rest of the UK before the crisis and have since resumed growth more rapidly. Real house prices in London surpassed their previous peak during 2014.• In 2013-14, average UK house prices were 6.9 times the level of average earnings -about the same as a decade earlier and still below the 2007-08 peak of 8.1. Young adults are the most likely to be considering buying their first home. The ratio of average house prices to the average earnings of 25-to 34-year-olds peaked at 7.7 in 2007-08 and was 7.2 in 2013-14.• People's regular outgoings on housing can move differently from house prices, depending on trends in mortgage interest rates and rents. During the recent crisis, many homeowners were helped by the dramatic fall in interest rates. On average, real housing costs for owneroccupiers with a mortgage fell by 38% between 2007-08 and 2012-13, taking the proportion of their income spent on housing costs from 16% to 10%. Of course, renters have not experienced the same scale of relief, and the proportion of their income spent on housing costs rose from 25% to 27% over the same period. As homeowners tend to be further up the income distribution than renters, this has had predictable distributional consequences, with those towards the top of the distribution seeing the most favourable trends in housing costs.• Increases in house prices relative to incomes have probably been at least partly responsible for a significant decline in homeownership (and a rise in private renting) since the early 2000s, reversing the trend seen over the late 20 th century. This largely reflects differences between generations: the age-25 homeownership rate fell from 45% for the mid-1960s birth cohort to 20% for the mid-1980s cohort. By age 35, the homeownership rate of those born in the mid-1970s remained 10 percentage points lower than for those born in the mid1960s at the same age.1 The authors gratefully acknowledge funding from the Nuffield Foundation, which has provided generous support for ongoing IFS analysis relating to the 2015 general election. The Nuffield Foundation is an endowed charitable trust that aims to improve social well-being in the widest sense. It funds research and innovation in education and social policy and also works to build capacity in education, science and social science research. The Nuffield Foundation has funded this project, but the views expressed are those of the authors and not necessarily those of the Foundation. Mo...

Housing Expenditures and Income Inequality

“…Many of the above findings mirror those for Anglo-Saxon countries. For example, rising housing expenditure shares, especially for renters and low-income individuals, are documented for both the U.S. (Quigley andRaphael 2004, Albouy et al 2016, Larrimore and Schuetz 2017) and the UK (Belfield et al 2015). However, the magnitude of both levels and changes is more moderate in Germany.…”

“…However, the magnitude of both levels and changes is more moderate in Germany. 37 At the same time, in contrast to the UK, where per capita household living space falls (Belfield et al 2015), housing quality for low-income individuals in Germany improves over time. In fact, homeownership rates in Germany slightly decrease for the most recent cohorts, although the changes across generations are far smaller than in the U.S. or UK (Goodman andMayer 2018, Belfield et al 2015).…”

“…For example,Belfield et al (2015) report that homeownership at age 25 in the UK more than halves between cohorts born in the mid-1960s (45%) and those born in the mid-1980s (20%). For the U.S.,Goodman and Mayer (2018) report a sharp decline in homeownership among young individuals aged 25-34, down from 49% in 2005 to 35% in 2015.39 See alsoCorneo et al (2009) who conclude that attempts to boost the savings rate of low-income households via government subsidies have so far not been successful.40 For the US,Kuhn et al (2017) show that housing wealth is the most important component of the wealth portfolio for the middle class, and that changes in the housing market are key drivers for wealth inequality Saez and Zucman (2016).…”

Does one size fit all? Place-neutral national planning policy in England and its impact on housing land supplies and local development plans in North East England

“…Fundamentally, Barker’s review stated that over a sustained period, housing supply has been unresponsive to pricing signals and that in large part this reflected constraints embedded in the planning system (Belfield et al., 2015). Post-Barker Review, governmental pressure intensified on planning with a neoliberal orthodoxy emanating from Whitehall, echoing Barker’s central finding, that planning (primarily at the local authority level) was a significant bureaucratic obstruction to housing development by ultimately constraining land supply.…”

House Prices and Consumption Inequality

“…In fact, in both the United States and the United Kingdom, the rent‐price ratio is countercyclical to the extent that assuming a constant rental price (and varying rent–price ratio) is likely as close to the data. (See Belfield et al., , for the United Kingdom.) For this reason, I numerically explore an extended model with constant rent prices in Section 6 and show that the conclusions from the main analysis hold.…”