The latest ONS (Office of National Statistics) statistics for house prices in local authority areas show the median (middle point) house price for Swindon in 2014  surpassed the highest previous level reached in 2007 before the housing crash. It was £165,000 compared to its post-crash low of £147,000. Detached dwellings now have a median price of £250,000, semi-detached homes £181,000, terraced houses £142,000.[1] The only exception, not having nearly reached or surpassed the previous highs, are maisonettes and flats. They were at £109,500 in 2014, still well below their 2007 high point of £138,000. This may well reflect the change in the composition of new build with a higher percentage of flats built than previously.

When the crash came in 2007/8 there was a precipitous decline in sales. In Swindon in 2007 there were 6,506 domestic property sales, nearly 8% of properties in the town. In 2008 it fell to 3,113. For the next 4 years sales remained below 3,000 a year. By 2014 they had risen to 4,010, or just 4.3% of properties in the expanding town.

As with most of the country Swindon faces a crisis of affordability with stagnating wages and the growth of precarious employment, including zero hours contracts (See “Zero Hours Contracts – promoting a climate of fear in the workplace”. The latest HMRC data for earnings for Swindon is for the year 2012-13. Employment income for that year showed a mean (average) of £24,900 and a median of £19,900, compared to the 2010-11 figures of £24,900 and (for the median) £20,300. This trend has continued since then. The government’s NOMIS website shows average earnings lower in 2014 than in 2010.

The growth of self-employment is also a factor in relation the affordability of mortgages  and high private sector rents. Nationally there has been a big increase in self-employment (some of which is bogus[2]) and at the same time a decrease in earnings of these people. The picture of the development as a sign of ‘entrepreneurial’ activity is contradicted by the earnings levels. In 2010-11 the mean income of self-employed people in Swindon was £13,200 and the median was £9,790. In 2012-13 these figures were £12,100 and £9,620. You wouldn’t gain a mortgage if these were your sole earnings. According to the government’s NOMIS website the numbers of people self-employed in Swindon had risen to 13,300, compared to around 10,000 in 2010.

In addition, despite an increase in population between 2010 and 2013 there was a decline of 1,700 full-time jobs and an increase of 1,900 part-time jobs in the town over that time-scale. The number of people classed as ‘economically inactive’ increased from 22,800 in March 2010 to 26,300 by the end of 2014.

In the run up to the housing crash the ratio of house price to earnings reached a high point in Swindon of 6.17 for the median wage, in 2007. It was even worse for the lowest quartile earners. The ratio of their income to lowest quartile house prices reached 7.14 in 2008. These compared to 1997 figures of 3 times median earnings to median wage and 3.21 lower quartile wages to lower quartile properties. Obviously when the crash came these ratios declined as a result of house price falls. However they remain historically high. The latest figures available are for 2013 of 5.57 median earnings for median house price and 5.74 lowest quartile wages for lowest quartile house price.

Given the lax criteria for issuing mortgages in the run up to the crash it’s interesting to see that in 2007 1,453 maisonettes and flats were sold, despite the fact that the median price had soared to £138,000. This was the period when ‘self-certification’ was rife, and competition between mortgage providers was such that “irresponsible lending” was the order of the day. The number of flats and maisonettes sold crashed to 593 in 2008 then continued to decline, rising slightly, with 540 sold in 2014.

Although wages are now said to be rising above the level of inflation such a is the structure of the labour market, with the proliferation of precarious work, including zero hours contracts, that the lack of stable, well-paid employment is a major factor in the decline of the number of mortgages. The Bank of England’s latest Financial Stability Report says that house prices grew by 5.6% in the three months to May 2015. The coalition government’s Autumn Statement in December last year estimated house prices to rise by 28%  from 2015 to 2019 whilst average earnings were predicted to rise by only 16.7%.

The FSR reports that buy-to-let mortgage lending now accounts for 15% of the stock of outstanding mortgages and nearly 20% of new lending in the first quarter of 2015. The growth of BTL has been one of the reasons why would-be first time buyers have struggled to buy a home.

The Bank says:

“UK household debt remains high relative to income. And recent house price and mortgage activity data, together with historically low interest rates on many mortgage products, suggest that the vulnerability from high and rising household indebtedness identified in June 2014 remain.”

In a recent addition of the Swindon Advertiser we heard from one estate agent that there are ten people chasing after each property they put on the market. However, the crisis is not one of inadequate ‘supply’ but of affordability both for buying and renting. The only way that the crisis of affordability can be seriously addressed is by a return to large scale Council house building. Without this then house prices are likely to continue to outpace earnings and the proliferation of private rental will drive up the Housing Benefit Bill, since HB is around £30 a week higher for the private rental sector than for ‘social housing’. The extension of ‘right to buy’ to Housing Associations and the enforced sale of Council homes of ‘high value’ to subsidise it will make matters even worse (See “Right to Buy 2 – throw out the Bill”) as the number of available ‘social housing’ homes declines.

Martin Wicks

July 3rd 2015

[1]    In 2007 the median of detached house was £249,000, semis £175,000 and terraced houses £144,200.

[2]    Some employers ‘self-employed’ staff who are really employees, in order to cut their costs.

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