Average house prices across the UK have increased 5.1 times faster than average weekly earnings over the last five years, the Resolution Foundation said today (Tuesday) in response to the latest ONS House Price Index (HPI).
Resolution Foundation analysis of HPI data shows that house prices have increased by 36 per cent since April 2011, while average weekly earnings have risen by just 7 per cent in nominal terms over the same period.
This decoupling of house price and earnings growth has been even more striking in London and the South East, where house prices have increased by 57 per cent and 39 per cent respectively. While average weekly earnings have increased by 5 per cent across the South East, they have actually fallen very slightly in London – reflecting both reductions in bonuses at the top of the earnings distribution and strong employment growth in lower paying roles.
Even in Scotland and the North East of England – where house price growth has been most modest over the last five years – it has been roughly double the pace of average earnings growth.
The Foundation says that post-millennial house price rises have led to a dramatic shift in housing tenure. Home-ownership rates have fallen from around 70 per cent to 55 per cent over the last decade for those on low to middle incomes. The proportion of people renting privately has doubled over the same period to 27 per cent.
Lindsay Judge, Senior Policy Analyst at the Resolution Foundation, said:
“Runaway house prices have had a clear feed through to living standards in recent years. Most obviously it has priced people out of home-ownership, pushing significant numbers into the private rental market.
“But rampant house prices inflation isn’t just a problem for wannabe home-owners. It has increased the stock of mortgage debt, and fuelled demand for renting that is driving up costs there too. Ultimately we all pay for house price inflation by spending a greater share of our incomes on housing.
“The solution to this housing crisis isn’t easy – especially in London. It will require radical action to both boost the supply of housing for all tenure types, and improve conditions and security in the UK’s private rental sector.”