Affordability: It needs to be more than just a buzzword

Affordability is one of the top concerns for residential housebuilders and developers. The media rarely hesitates to tell us housing stock is low, and prices are high, so ensuring that new-builds meet the needs of their target audience is crucial. Currently, the average house in the UK costs 7.4 times more than the average income – making even a standard property a stretch for many families.

Unsurprisingly, the capital offers an even higher disparity between income and house prices. However, by translating data into practical insights and looking deeper into the sensationalist headlines, we can understand the true state of the housing market, in London, as well as the UK more widely.

The average house price in London is 14.1 times more than the average salary, which is almost double the average. This means that, based on income, only 6 per cent of households can afford the average house price in the capital. What’s more, Londoners have the lowest proportion of disposable income in the UK, at just 36 per cent of their gross earnings. This equates to £16,500. Only the North East has less disposable income in absolute terms, at £15,800, despite the fact that only the South East has a higher average household income than London.

Salaries and incomes aren’t the full story when it comes to affordability, however. CACI has recognised in their research that savings play a crucial role in putting down cash deposits. Perhaps the London-dweller’s savings might make up for the lack of disposable income and soaring house prices? Well, despite being 6 per cent more likely than the national average to have savings of over £10,000, the average 10 per cent London deposit is £64,000, so savings combined with income is still unlikely to cut it. What this shows is that while you could expect to get higher returns for your build, the typical London resident will struggle to afford it.

However, London does have some options that lean towards the affordable. East London, in particular, is the best spot for affordable property developments. Houses here, on average, are 8.5 times higher than income, and this means 16 per cent of residents would be able to afford the average house – and while that’s still a slim figure, it is a significant improvement. Havering, Barking & Dagenham and Redbridge make up 3 of the 4 most affordable boroughs in Greater London

Yet, as we know, developers are focusing more and more on other regions when it comes to building new homes. CACI’s research has also shown top areas of affordability across the UK. The North East comes out on top for cost effective housing, with the average house price at 134,807, and the average household income at £32,731. This means house prices are only four times that of the average income, a third of London’s ratio. They may have less money, but they are able to spend more on their home, due to the much more reasonable prices and only slight decrease in income.

So, who can afford to spend more? While we may think areas like London have an influx of people willing to spend big figures on their property, the key to finding opportunities is to look at consumer disposable income (the money they have available after their necessary outgoings). These figures vary massively across the UK and can be the key to unlocking property potential for those with access to more money to spare. CACI’s whitepaper, “How We Live”, draws on the most comprehensive industry insights to use Paycheck Disposable Income to calculate how much available ‘disposable’ money there is across the country, and which areas may be wanting to spend more on their next home.

Affordability means very different things for different people. Whether this be house prices, income, disposable income, or savings for a deposit. As shown above, the metrics vary drastically according to the location; and any developer embarking on a new project should take location into account. Some customers may be able to spend more, and willing to do so, but ensuring we know who and where they are is key to ensuring housing supply meets demand.

By Dan Parr, Vice President of the Property Consulting Group, CACI