By Neil Tiley, Senior Director of Planning at Pegasus Group 

The affordability of housing improved slightly in 2025 year-on-year, according to new data from the Office of National Statistics (ONS). However, a closer look at the findings reveal a wide gap remains between what people earn and what houses cost.

In 2025, households in England had to spend 7.6x the median income (£39,300) to afford a median-priced home in England (£300,000). Whilst the median house price has increased, the affordability of housing has improved by 3% – with the ratio being the lowest ratio since 2015.

Beyond the numbers, the cost-of-living crisis is taking its toll on housing affordability

These figures should not be taken at face value, though, to suggest an improvement in families’ ability to access housing. It is more likely that the opposite is true and that the improved figures stem from the continued cost-of-living crisis. With households spending a greater proportion of their income on necessities like heating and food, they have less resource to compete in the housing market. This, in turn, constrains house prices.

This new data also affects the minimum local housing need from the government’s new standard method. First published in December 2024, the method is informed by the number of dwellings in the housing stock and the affordability of housing.

Applying the 2025 affordability ratios to 2024 housing stock suggests the nation needs 368,078 homes per annum nationally. This is 0.8% lower than the need for 370,948 identified in May 2025, notwithstanding the deepening housing crisis.

Local authorities must aim above their minimum housing targets

New data on the housing stock is due in May 2026. However, we can already robustly estimate housing stock in 2025 based on housing stock in previous years, and the data on net additional dwellings published in November 2025. Applying the 2025 affordability ratios to the estimated housing stock of 2025 suggests the country’s need will minimally increase by 0.05% from 370,948 homes per annum in May 2025 to 371,117 in May 2026.

Given that only 208,600 homes were built in 2024/25, the scale of the Government’s mandate to deliver 1.5 million homes over this parliament looks increasingly challenging.

In this context, we strongly believe local authorities must aim above their minimum local housing targets to help deliver the 1.5 million homes per annum sought by the government. Unforeseen events that cause project delays on site, or even cancellations, are unavoidable.

The industry must therefore plan for contingencies in the event that specific allocated housing sites cannot be delivered. This is the only way the housing market can stand a chance of delivering the required numbers and improving accessibility.

Key points on Affordability Ratios from a regional perspective:

· Regionally, London continues to be the least affordable area with an affordability ratio of 10.61. However, London has seen the greatest improvement in affordability over the last decade of any region with affordability ratios reducing by 4.0%.

· The East Midlands has shown the highest rate of increase (11.8%) in the affordability ratio over the last decade

· The North East has the lowest affordability ratio of 5.00, and the affordability of housing has improved in this region by 2.9% in the last decade.

Pegasus Group has compared the 2024 and 2025 affordability ratios to look at how the new ratios impact on the standard method housing figures. It should be noted that this is initial analysis and may be subject to change.

Impact on the Standard Method

The map below presents the standard method figures based on Pegasus’ initial analysis of the data. It shows the annual minimum local housing need, based on the Government’s standard method calculation made 26th March 2026, as well as a robust estimate of the position following published housing stock data in May 2026.

Clicking on each local authority on the map also presents the previous annual standard method figure, as calculated in May 2025.

Key points to note from the standard method calculations:

· Using the updated 2025 affordability data, the total standard method figure for housing in England is 368,078 per annum. This is expected to increase to 371,117 per annum from May 2026, compared to the need for 370,948 homes in May 2025.

· Looking at individual local authorities, Oldham (+4.1%), Derby (+4.0%) and Gedling (+3.9%) have seen the biggest percentage increases in minimum local housing need and these three are expected to maintain the greatest increase from May 2026.

· Three Rivers (-8.1%), Hackney (-7.6%) and Lambeth (-5.6%) saw the largest percentage decreases and this is also expected to remain the case from May 2026.

· In absolute terms, Birmingham sees the largest increase in the minimum local housing need with an increase from 4,511 homes per annum in May 2025 to 4,595 in March 2026 and to 4,639 in May 2026.

· By contrast, Kensington and Chelsea sees the largest decrease in absolute terms with a reduction from 4,758 homes per annum in May 2025 to 4,505 in March 2026 and to 4,525 by May 2026.

Commenting on the new ratios, Neil Tiley, Senior Director, says:“Whilst at face value, the new data suggests that the affordability of housing is improving, which is to be welcomed, this hides the reality of the cost-of-living crisis with many households finding it increasingly difficult to manage financially.

Furthermore, and notwithstanding the improvement in the affordability of housing, it remains the case that housing is simply unaffordable for a significant proportion of existing and aspiring households. Indeed, on average across the nation a household would need to spend 7.63 times the median income to access a median priced house, which puts the prospect of buying a home beyond the realistic expectation of many households. On any basis, housing was and remains unaffordable to many.

The new data does however affect the way in which housing needs are to be calculated, albeit the new affordability data provides only one input to the standard method and we await the publication of the other part, namely information on the housing stock. Based on our analysis, the national need does and will remain broadly consistent, albeit the changes in individual authorities may be significant in terms of both plan-making and decision-taking.”

If you would like to discuss this further, please reach out to Neil Tiley.