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Housing Affordability in the UK: Exploring the Disparity Between House Prices and Wages

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Researchers at Bird & Co explored house price and income data over the past 20 years to ascertain any correlation between the two factors. As such, they were able to identify the areas with the largest disparity, and therefore the areas with a more probable chance of getting on the property ladder.

Affordability is a key consideration when searching for a house; it ensures financial stability and prevents overextending on a budget. It allows for a balanced approach that covers all essential expenses, helps build equity, and supports long-term financial goals like savings and investments.

Understanding the correlation between house prices and income can significantly impact the choices of where people may choose to live in order to improve their quality of life, and better their chances of becoming a homeowner.

As we see house prices continue to fluctuate and wage growth varying across regions, our research provides valuable insights for prospective homebuyers, investors, and policymakers. By highlighting these disparities, we aim to shed light on areas of affordability and economic stability, ensuring you make well-informed decisions in your property endeavours.

In this article, we’ll break down the list of the top and bottom locations where house prices and income have the largest and smallest disparities. We’ll also dig further into what factors may be causing these disparities and the overall impact this has on UK residents.

Areas in the UK with the largest disparity between house prices and wages

Working out the percentage change in house prices from September 2003 to September 2023, and the same for income from March 2003 to March 2023, and finding the difference between these figures, we could ascertain the areas with the largest disparity between house price and income growth.

The 10 locations with the largest disparity, and therefore where wage growth is not keeping pace with house prices, were:

Location

House Price % Difference – Income % Difference

Burnley

187.31%

Kensington and Chelsea

178.41%

Blaenau Gwent

173.20%

Merthyr Tydfil

173.07%

Pendle

160.91%

City of London

159.76%

Waltham Forest

157.97%

Haringey

150.95%

Salford

142.12%

Barking and Dagenham

141.48%

 

The data underscores an affordability crisis in various regions across the UK, showing the issue of housing affordability is widespread and not just affecting affluent areas, as you might expect.

Burnley has the highest disparity between house price percentage change and wage percentage change, with a difference of 187.31%. This indicates that house prices have increased significantly compared to wages, making it challenging for residents to afford housing based on their incomes.

As expected, several Greater London boroughs such as Waltham Forest (157.97%), Haringey (150.95%), and Barking and Dagenham (141.48%) show significant disparities. The high demand for housing in London, driven by factors such as population growth and limited supply, contributes to these gaps.

Surprisingly, numerous areas across Wales are also showing a large gap between wage and house price growth. Blaenau Gwent (173.20%) and Merthyr Tydfil (173.07%) top the ranks, with the 3rd and 4th highest disparity.

Pendle (160.91%) and Salford (142.12%) in Northern England also face high disparities; a further surprise. These areas may be witnessing house price increases due to factors like regional development and investment, but wage growth has not kept pace.

Ultimately, the gap between income and house price increase within these areas makes it difficult for residents to purchase homes, which could potentially lead to increased rental demand and housing insecurity.

Areas in the UK with the smallest disparity between house prices and wages

The Local Authorities with low disparities between house price percentage increase and wage percentage increase generally offer more affordable housing, contributing to economic stability and better quality of life for residents. These areas could potentially attract new residents and businesses due to their balanced economic conditions according to these statistics.

The 10 locations that saw the smallest difference between the growing cost of houses and growing wages were:

Location

House Price % Difference – Income % Difference

Ribble Valley

-11.54%

East Devon

8.56%

North Kesteven

14.42%

Wyre Forest

15.83%

Newcastle upon Tyne

16.45%

Mid Devon

23.74%

South Staffordshire

26.63%

West Lancashire

28.86%

Blackpool

30.15%

Cornwall

30.24%

 

Cornwall shows a relatively low disparity between house price and wage growth, with a difference of 30.24%. Blackpool is very similar, at 30.15%. This indicates a more balanced picture, showing wage growth has kept up with housing costs more so than other locations, and is therefore more affordable for these residents.

East Devon shows a minimal disparity of 8.56%, indicating a very strong alignment between house price and wage growth. This balance is ideal for maintaining affordability and preventing housing market distortions.

Ribble Valley actually presents a unique case with a negative disparity of -11.54%, suggesting that wages have grown faster than house prices. This rare scenario can indicate an exceptionally affordable housing market, potentially attracting new residents and investment.

Why are house prices rising faster than wages are increasing?

House prices in the UK are rising faster than wages due to several interconnected factors. A significant reason is the imbalance between supply and demand. There is a limited supply of housing, especially in urban areas where many people want to live and work. This shortage, combined with high demand, drives up prices as buyers compete for available properties.

Low interest rates have also played a role over the years, making mortgages more affordable and encouraging more people to buy homes. This increased demand puts further upward pressure on prices. Additionally, property is seen as a solid investment, attracting both domestic and international investors, particularly in London and other major cities, further inflating prices.

Urbanisation and population growth are also others factor to consider. As more people move to cities for job opportunities and better amenities, the demand for housing in these areas outstrips supply, leading to higher prices. Regulatory restrictions can also limit new housing developments, constraining supply and pushing prices up.

General inflation affects house prices too, as the cost of building materials and labour increases. Government policies, such as tax incentives for homebuyers, can boost demand without a corresponding increase in supply, exacerbating price rises. Speculative buying, where investors purchase homes expecting prices to continue rising, also inflates the market.

These factors collectively have resulted in house prices increasing at a faster rate than wages in the UK, making it increasingly difficult for many people to afford homes. This growing disparity highlights the need for balanced economic and housing policies to address affordability issues.

Why is it important for house prices and wages to rise together?

Affordability and Housing Market Stability

If house prices increase faster than wages, housing becomes less affordable for the average person, leading to a potential housing crisis where fewer people can afford to buy homes, resulting in increased housing insecurity. Conversely, if wages rise in line with house prices, people can continue to afford homes, which supports a stable housing market.

Economic Equality

Maintaining a balance between house prices and wages is essential for economic equality in the UK. When wages rise in line with house prices, it helps prevent the exacerbation of wealth inequality. Disproportionate increases in house prices can leave those who do not own property behind, while property owners see their wealth increase.

Consumer Spending and Economic Growth

When house prices rise without corresponding wage increases, a larger portion of income is spent on housing, leaving less disposable income for other needs. This reduction in disposable income can slow down overall economic growth. Balanced increases in both wages and house prices allow for healthy consumer spending across various sectors, driving economic growth.

Debt Levels and Financial Stability

If house prices rise without a corresponding increase in wages, individuals in the UK may take on excessive debt to afford homes. High levels of debt can lead to financial instability and increase the risk of defaults and foreclosures, which can have broader negative effects on the economy. Ensuring that wages keep pace with house prices helps maintain financial stability.

Cost of Living and Quality of Life

Housing is a major component of the cost of living in the UK. When house prices rise without corresponding wage increases, the overall cost of living increases, potentially reducing the quality of life.

People may have to cut back on other essentials or luxuries, impacting their overall well-being. Ensuring that wages rise alongside house prices helps maintain a reasonable cost of living and a good quality of life.

Economic Mobility

Rising wages alongside house prices help ensure that people in the UK can move and access better job opportunities. If housing becomes too expensive in areas with good job prospects, it limits economic mobility and can lead to regional economic imbalances. Ensuring that wages keep pace with house prices supports economic mobility and helps balance regional development.

Buying a Home in 2024?

As mentioned, understanding the disparity between house prices and wages has a huge effect on the choices people make when it comes to home ownership.

If you’re considering buying a home, researching where house prices have risen in line with wages, such as Cornwall, Blackpool, and East Devon, could highlight good opportunities. These regions offer more affordability and economic stability, making it potentially easier to manage mortgage payments and maintain a good quality of life.

Of course, there are other factors to consider other than affordability when choosing where to buy, but starting here could help you to make more informed choices.

If you’re looking to buy a home in 2024, we’re on standby to help you with all your conveyancing needs. Just give us a call at 01476 372 038, or start a quote.

Methodology and Data Sources

The house price to workplace-based earnings ratio from the past 20 years study was sourced via the most recent ONS data.

To work out the disparity between wage growth and house price increase, researchers worked out the percentage difference for each factor between 2003 and 2023, and found the difference between these two figures in each location.

Please note, time frames between each data set may vary. Any conclusions drawn from the data are that of the Bird & Co researchers.