A report by the BBC, based on a review by the Yorkshire Building Society, has cast a very interesting light on the UK property market and the so-called affordability factor. The general press seems to give the impression that wage inflation is far less than house price inflation right across the UK. Citing the 2007 economic downturn opposition politicians have certainly tried to make hay while the sun shines in this “difficult situation”. However, you may be surprised to learn that 54% of the UK has seen wages rising faster than property prices since 2007.
Before we look at some of the data provided by the Yorkshire Building Society it does look as though the so-called North/South divide is widening. The impression is that much of the media focuses upon house prices in London and the South of England while often leaving the Midlands, the North, Scotland and Wales in darkness. So, what can we learn from this report?
Office for National Statistics (ONS)
The data used to produce the Yorkshire Building Society report was provided by the ONS which is a non-political body giving unbiased facts and figures. To start with we know that the likes of Edinburgh and Birmingham, thriving cities in their own right, are among those who have seen wage inflation outstripping property prices since 2007.
There does seem to be an English biased with regard to wage inflation and house price inflation which has seen house prices, as a multiple of average income, increase from 7.9 times in 2007 up to 8.2 times. The situation in Scotland is dramatically different with house prices now valued at five times average earnings as opposed to 6.2 times back in 2007. There is a similar scenario in Wales where the multiple has reduced from 6.9 times in 2007 down to 5.7 times now.
Best and worst performing by affordability
Scotland has its own challenges aside from the 2007 economic downturn with the independence referendum having an impact upon the housing market. It will therefore be no surprise to learn that the three markets with the biggest shift in affordability are Inverclyde, which reduced from 6.38 only 10 years ago down to 3.67 times. North Ayrshire and West Dunbartonshire have also seen a similar significant shift in their affordability factors although it would be interesting to see what rental yields properties in these regions demand.
The three biggest movers in the UK include Hertfordshire which has increased from 9.83 times up to 15.83 times. Then we have the London Borough of Haringey where the multiple is now 17.5 times and London borough of Westminster which is a staggering 24 times average earnings.
Fighting the North-South divide
While many political parties like to focus on the North-South divide and what they can do for those in the North of England, the Midlands, Scotland and Wales, do they really deliver? While wage inflation is outstripping house price inflation, at least since 2007, in many areas of the North of England, Scotland and Wales, is this because of a slowdown in house prices more than an increase in wage inflation?
The proof is certainly in the pudding and it is safe to say that in general the differential in affordability has not been reflected by an increase in house prices outside of London and the South of England.