The UK Housing Affordability

The recent Brexit has been thoroughly attributed to cause the housing affordability crisis for the UK market as a whole. The political and overall social instability and uncertainty resulted into the controversial housing-related trends and concerns among a variety of stakeholders in the field. Nonetheless, the issue is not as simple as one might have considered at first glance, with the long-term history in the UK policy-making and societal governance. Therefore, a thoughtful and multidimensional analysis was needed to find the evidence whether the recent trends in the UK housing market indeed allow suggesting that concerns related to the housing affordability in the country are valid. Hence, the report proposed a comprehensive and focused review of the up-to-date evidence based on the findings from the scholarly and professional consultancy resources on the topic.

The paper evaluated the factors and drivers linked to the housing trends and traced their relatedness with a range of UK internal and external factors, including political and resulting social instability concerns. The key controversies were observed on the verge of comparison of house prices, transactions in the sector, subsequent housing affordability rates per region and the UK in general, tenure, and gearing aspects of the industrys functioning. Furthermore, construction capacities and trends were evaluated to provide a more thorough picture on the investigated research question. At the same time, sufficient attention was paid to the policy efforts to eliminate the challenge of housing affordability for the UK residents. The findings revealed the long-term endeavors of the authorities in the area, with the subsequent shift of power to address the problem with the help of a wider range of stakeholders. Therefore, the analysis showed that the housing affordability is a continuous concern in the UK, with the multidimensional through solvable nature of the problem while its possible disastrous condition is mostly overstated.

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Housing Affordability in the United Kingdom

The UK housing market has never been simple for a variety of stakeholders engaged in its functioning. However, the recent changes and challenges in the field due to the Brexit-related and other issues make the situation, with regard to its either actual or overstated specificities, the way too complex to be considered unambiguously. The above phenomenon has raised numerous concerns with regard to housing affordability and the British housing market survival as a whole. For instance, the immediate post-vote effects implied a sharp drop in buyer interest with a necessity of real estate funds to freeze withdrawals. This is regardless of the fact that the public sector expenditures on housing are huge. The cost of the programs in the sector amounted for above 28 billion in 2015-2016, while at least 71,500 individuals were homeless provided with a temporarily accommodation . At the same time, local housing needs are substantially linked to after-housing costs poverty with distinct implications for different consumer groups, ranging from concealed households and sharing amenities, to those experiencing the lack amenities or suitability problems, to name a few. In addition, it is necessary to mention the decrease in public sector building along with reduction in availability of social housing for rent in spite of increasing demand for housing from the 1980s to date. Therefore, the situation with the housing affordability requires precise analysis to be addressed in a holistic and successful manner.

For this reason, the report aims to evaluate the available up-to-date evidence from the scholarly and professional consultancy resources to provide the evidence-based rationale as to whether the recent trends in the UK housing market indeed allow suggesting that concerns related to the housing affordability in the country are valid. Through the in-depth literature review, the paper analyzes the contemporary trends in the field, with insight into the historical and international perspectives for comparative purposes. Further, an account is given to the key drivers that define the UK housing affordability. In addition, the report pays attention to the economy-mediated influence on the issue in question. Finally, the evaluation offers a number of the rationalized projections and recommendations in the sector in light of the findings obtained in the process.

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Recent Trends in the UK Housing Market

To begin, the trends and estimates linked to the UK housing market feasibility reveal the overall upward tendencies that allow assuming the questioned nature of housing affordability for a variety of stakeholders. Primarily, the prices for accommodations should be considered in this respect. Based on the statistical data on the issue, prices demonstrated the increase, though without sharp fluctuations in the UK in general. To compare, the similar trend has been observed in each of the UK administrative regions. Both scholars and professional analysts have attributed this tendency to a general inflation on house pricing, as relevant for different countries during the same period. However, the UK-specific factors have been detected as well. In particular, as mentioned earlier, Brexit can be referred to as a sufficient barrier towards housing affordability. Specifically, 2015 showed slowdown in pricing rates due to this reason, while by March 2016 this level revealed the growing tendency of around 8.5% annually, with an average value of a house of approximately 209,000 to be paid. On a similar note, the analysts prove that the situation is not be alike for all UK regions. According to PwC estimates, by 2018, the house prices in the London market will be lower by 60,000 as compared to those of the pre-Brexit period in contrast to 8,000 price decrease in the North East of the country and 10,000 in Scotland revealing sufficient affordability gaps per capital and noncapital areas. Hence, the controversial political situation has resulted into the pricing decline in the short run making the issue of affordability possibly overstated, though peoples earnings faced decrease for this period as well. At the same time, the analysts project the short-term tendency of the above decline, with the ongoing price growth by approximately 4% in 2018 and 6% in 2019.

The situation with transactions and affordability rate in the field also cannot be perceived in a one-sided manner. Overall, the country faced the tax increase and resulting transaction fluctuations both in the UK as a whole and per regions. At the same time, establishment of non-profit housing associations has become a substantial contributor towards assisting the public sector in terms of diversification of access to housing. Therefore, it is unlikely that the decrease in housing prices, as stated earlier, has led to its increased accessibility and enhanced purchasing behavior. In this regard, more factors should be considered to evaluate the issue more thoroughly. As evident from Appendix 6, the affordability index sufficiently differed per regions. Specifically, the highest house affordability opportunities were observed in England, which were slightly higher than the countrys average. On the contrary, Scotland faced the lowest affordability rates with the Northern Ireland following it. This factor of the UK housing market is measured with respect to first-time buyer house price to earnings ratio, thus, reveals the constrained capability of this population segment to afford housing per their disposable income available.

With regard to tenure, the data seem dubious as well. While the officials observed more affordability of housing for existing owners, this indicator for first-time buyers revealed a negative trend. With the evident prevalence of owner occupies, this trend showed the downward trajectory in 2008 through 2015. Similarly, the number of social renters tended to decrease, with only slight growth indicators for private renters. Although the number of new buyers who spent around a quarter of their income on housing reduced from 40% to 19%, the exact number of mortgage takers doubled from 2.3 times average income in 2000 to 3.2 times income in 2014. Moreover, Londoners were forced to pay 60% higher rents than those in other UK areas, including both social and private rents. Along with the growing number of homeless, local authorities expenditures on temporary accommodation grew by 46% since 2010-2011. It follows that while attempts to meet the housing demands were made, the trends appear controversial and demonstrate significant gaps and constraints in populations capability to afford housing.

Drivers of House Prices and Housing Construction

In-depth overview of the situation in the UK housing market enables to think over the complex nature of the real estate affordability, especially housing for individual owners. This assumption derives from multiple factors at a time, though with a clear emphasis on support for existing owners, or their affordability to have housing, the housing market as a whole, and construction industry. Primarily, it is necessary to consider the availability of new houses for new consumers, namely, construction trends. Based on the data visualized in the construction rates in the UK and per regions, private enterprises comprised the key driver of presenting new buildings in the market, with the similar trends per regions. Nonetheless, the contemporary number of houses built is lower than that during the previous decades. In this regard, local authorities output remained constantly the lowest contributor to the process, with more contribution coming from the HAs. The latter stakeholder has assisted in building around 0.5 million new buildings for the last 30 years and different type transfers of houses into social housing ownership. Still, the general market supply was linked to private companies making it relevant to assume the constrained affordability of housing to those in need of it that resulted in developers facing downward sloping demand curves in the housing market. On a similar note, the Brexit led to decrease in the foreign investment in both construction and housing, even though with short-term trends.

At the same time, affordability is measured through peoples income, namely, purchasing housing at a price they can afford based on their earnings. This driver of housing supply-demand can be linked to new social risks, including lone parenthood, long-term unemployment, mental ill health and working poverty, thus, no opportunity for housing affordability. Moreover, other specificities of income-related affordability can be considered. As mentioned earlier, first-time purchasers are substantially disadvantaged in this context. Apart from the mortgage, this category of population, or more specifically generation rent aged 20-39, is required to save for as many as 19 years to be able to buy their first house. In addition to social, political and economic uncertainty, it is critical to regard interest rates as notable drivers of housing affordability. Therefore, the UK housing market imposes numerous limitations for these stakeholders while impacting the affordability of the housing in this respect.

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The Economic Outlook

Undoubtedly, the economy of the country directly impacts the peoples affordability in purchasing real estate. Nonetheless, this research area is not unambiguous as well since many factors are intertwined here with their multiplied role to be regarded as a whole. For the most part, the affordability of purchasing behaviors relates to ones employment status, thus, unemployment rates among the population and labor policies should be regarded foremost. According to the official statistics on the issue, the number of employed UK individuals instantly increases, though inflation and actual earnings of the working population reveal the downward but not critical trends. For instance, growing demand for housing resulted in inflating of the prices that tripled for the last decade for London alone while the third of tenants live under the national poverty line. Hence, affordability is still questioned in this context.

To a great extent, the UK banking system shapes the housing affordability for individual consumers, especially first-time buyers, probably, after government-led programs and scenarios. Indeed, according to the recent data available, the UK banks value account for more than 6 trillion of GDP, including a network of above 311 banks which comprise the third largest system in the world. The overall political, financial and economic instability and uncertainty in the UK economy, especially due to the Brexit issues, has led to the short-term impacts on the banks performance. For instance, the values of the abnormal and cumulative abnormal returns have dropped significantly and the immediate post-Brexit impact was negative. Therefore, mortgages for people willing to own a house appeared either a risky venture or the access to it was limited in the short run, with slow but evident improvements as the time after the event passed. Nevertheless, the number of people engaged in mortgage-based housing purchasing decreased for the last decades from 40% to 19% since 2008 onwards. Still, first-time buyers, who refer for mortgage, spend above 21% of their income on repaying the housing-related debt making the banking system an important affordability factor in this regard. On the other hand, banks tend to compete for more borrowers in this context tempting them with favorable interest rates and other propositions, such as long-term fixed rates or no fee or free valuation opportunities among others. However, all the consumer-tempting propositions depend upon the housing prices, which are inflating at a remarkable pace pressing on banks and becoming a substantial threat for affordability of repaying the mortgage for consumers. Moreover, banks are forced to increase the interest rates with time to ensure their survival. Due to such uncertain conditions of the UK economy, foreign investors also hesitate to provide their capital for the economy growth, at least in light of the post-Brexit recovery.

Future Performance Prospects

Referring back to the history of the UK public sector as a whole, housing has been regarded as a top priority policy area for a long time. The factor has been of equal importance at the post-crises periods, such as the post world war eras as well as the financial downturn of the more recent time. This government prerogative has not changed over time, though with slight shifts of power and a wider range of stakeholders being involved in the process. This contribution ranges from availability of a diversified infrastructure network, partnerships, to name a few. For instance, the most recent government-initiated ambition states a necessity and willingness to deliver 1 million new homes to UK residents within the next 5 years embodied in a range of state-driven programs with different stakeholders involved as well.

In this context, one should consider a shift from a thoroughly traditional municipal housing provision, especially in social housing sphere, towards diversification of the affordable housing market. For instance, non-profit housing associations have been launched to reach low-income individuals in meeting their housing needs. These nonprofits are privileged with a combination of government capital grants, investment loans from financial institutions, and tenant rents. In addition, Help to Buy scheme can be regarded. The program entails 20% of the new house cost provided by the government and 75% of mortgage, with only 5% of cash deposit from a purchaser. Therefore, the program can facilitate the procedure of more confident acquiring the mortgage for a quicker availability of housing rather than making a person wait for 19 years to be able to buy a house from savings. Similarly, assistance for first-time buyers through abolition of the stamp duty is another option to specify. Furthermore, Brexit enabled a slight decrease in housing price inflation as one more step towards its affordability.

Conclusions and Recommendations

Based on the analysis, the UK housing market experiences the evident fluctuations in terms of supply-demand and affordability. Undoubtedly, the situation is complex and required accurate considerations, with numerous factors to be taken into account. First, there are sufficient housing gaps across the regions, with the higher level demand and disparities in England, especially London, as compared to other regions. Thus, a need for balancing supply-demand should be regarded from this stance. Second, it is necessary to review and balance the policies not only in housing but also related sectors to stabilize the UK economy as a whole. For instance, reviewing the governmental regulations over banking and construction industries can be a valuable input into facilitating the process and safeguarding all the parties perspectives, including affordability of housing for individuals and profitable functioning of the related fields. In this way, forming flexible partnerships between the relevant stakeholders will allow addressing the problem in a holistic way, such as setting acceptable interest rates while ensuring affordable demand-supply relationships meeting individuals and construction industrys needs. The specified current government-initiated programs are a valuable basis for the proposed upgrade in the field. Hence, concerns with affordability are valid but can be eliminated if approached in a comprehensive and well-planned manner.

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