The latest median house price to work-place earnings ratio demonstrates that the affordability of housing nationally has improved from 2021 to 2022, with households now needing to spend 8.28 times the median income to access a median priced house, down from 9.06 in the preceding year.

This improving position is likely, at least in part, to be accounted for by the cost-of-living crisis with households now having to spend a greater proportion of their income on basic necessities including heating and food, and thereby having less resource to compete in the housing market, which in turn will have constrained house prices. This should not therefore be taken as being indicative of an improvement in the ability of households to access the housing market. Indeed, given the cost-of-living crisis, it is likely that precisely the opposite is true.

This new data also affects the minimum local housing need that arises from the Government’s standard method. As the median house price to work-place earnings ratio has improved, the standard method now suggests that there is a need for fewer homes, notwithstanding the cost-of-living crisis. According to the standard method, there is now a minimum local housing need for 295,579 homes per annum nationally, down from 298,563 in 2021, and even further from the Government’s overall objective of delivering 300,000 per annum in England.

An insufficient number of homes have been delivered nationally to meet the need for 300,000 homes per annum, with only 232,816 built in 2021/22. The necessary consequence of this is that the need for housing will have increased regardless of the results of the Government’s standard method.

In this context, it remains the case that local authorities need to be aiming above the minimum local housing need to address housing needs in full and to deliver the 300,000 homes per annum sought by the Government. With the standard method still providing a minimum target below 300,000, it is inevitable that we will continue to see a shortfall in national housing delivery without this.

Furthermore, we strongly believe local authorities need to be aiming above the minimum target to even achieve it. Unforeseen events will always unfold when it comes to delivering specific sites which cause delays and, in some instances, no delivery at all. We have to plan for the fact that not every allocated housing site will be delivered and therefore we have to overprovide in relation to the identification of housing land in local plans to provide any chance of delivering the required numbers and improving the accessibility of the housing market.

The key points to note from a regional perspective with the new affordability ratios are:

  • Regionally, London continues to have the highest affordability ratio at 12.54. Since 2012, it has increased by 47% (from 8.53 to 12.54).
  • Yorkshire and The Humber now has the lowest affordability ratio of 6.17, however it still saw an increase between 2012 and 2022 of 15.3%.

Pegasus Group has compared the 2021 and 2022 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 capped standard method figures (with applicable urban uplifts) based on Pegasus Group’s initial analysis of the data. It shows the annual minimum local housing need based on the Government’s standard method calculation between 2023 and 2033 based on the ONS 2014-based household projections and the ONS 2022 median workplace-based house price to income ratio data.

Clicking on each local authority on the map also presents the annual standard method figure over the previous ten-year timeframe of 2022-32 using the 2021 affordability ratio data, as well as the total change and percentage change between the two figures.

Key points to note from the standard method calculations are:

  • Using the 2021 affordability data, the total standard method figure for housing in England was 298,563 per annum between 2022 and 2032. When the 2022 affordability ratios are used in the calculation for the period 2023-33, this decreases by almost 3,000 (a drop of 1%) homes per annum – to 295,579.
  • Looking at individual local authorities, Luton (+144%), Adur (+81%) and Coventry (+40%) have seen the biggest percentage increases in the minimum local housing need, owing to the fact that the adopted Local Plans are now more than five-years old which affects the cap within the standard method.
  • Melton saw the largest percentage from 2022 to 2023 at 20% (a decrease of 45 homes per annum – from 231 to 185).
  • In absolute terms, Coventry saw the largest increase in the minimum local housing need with an increase of 922 homes per annum (from 2,325 to 3,247). Coventry is followed by Luton with an increase of 854 homes per annum (from 595 to 1,449), and Adur with an increase of 200 homes per annum (from 248 to 448).

At the opposite end of the spectrum, Brent sees the largest absolute decrease in the minimum local housing need according to the standard method with the figure declining by 536 homes per annum (from 4,314 to 3,778).

Commenting on the new ratios, Neil Tiley, Senior Director, says:

“The new data highlights that the affordability of housing has improved nationally, although this is not the case everywhere. This is likely to be accounted for, at least in part, by the cost-of-living crisis which will have constrained the ability of households to compete in the housing market. As such, it is likely that in reality, housing has become increasingly unaffordable as a greater proportion of household incomes have been diverted to other basic necessities such as heating and food. Nevertheless, even if this improvement is taken at face-value, housing remains unaffordable for a large part of the population, especially for people wanting to get a foot on the housing ladder and buy their first property.

Nationally, a typically property now costs 8.28 times the median workplace-based salary, when mortgage providers will typically only lend between 4 and 4½ times one’s salary. If you go back 20 years, the figure was 5.12. With the number of homes being built consistently failing to meet the 300,000 per annum target identified by government and the ongoing cost-of-living crisis, it is unlikely that households will find that the prospects of accessing a home will significantly improve any time soon. As set out in national policy, we need to see an increase in house building across the entire country to support long-term sustainable growth, improve the accessibility of housing and to realise the ambition of levelling up the economy.”