The Private Sector - 'Reading the Housing Market'

"Reading the Housing Market" -  a survey of the private sector housing market in the district area, was first published in 2001, and has been updated annually since then. So far, the studies have concluded that to meet the District’s needs, it would be necessary to provide more social and ‘sub-market’ private housing for sale or rent, because the housing market is presently not catering for this end of the market.

The recently completed “Housing Needs Assessment Update 2006”, commissioned by the Council, and undertaken by Fordham Research, confirms this conclusion. Reading the Housing Market 2006 also confirms the trend that an increasing number of middle income households – especially first-time buyers – find it difficult to enter the housing market or difficult to find property that is suitable for their needs; for low-income households, there are diminishing prospects of any market solution to their housing needs, whether to buy, or to rent. In short, there is a lack of affordability of “for sale” and privately rented housing. At the heart of the affordability issue is the problem that Huntingdonshire house prices have continued to rise (20.9% in 2003-4 and 9.6% in 2004-5) at a rate that far, far outstrips earnings and the capacity of aspiring new owners to borrow. The following chart shows the strong upward trend in house prices, and confirms that it has affected all house types.

In Huntingdonshire between the first quarter of 2004, and the first quarter of 2005 the average rise in house prices was 9.6% – very close to the national average rise of 10.3%, and just under the regional average of 11.4%2. As our chart shows, this follows on from several years of strong growth. The upward trend has been punctuated by several periods of exceptional growth such as the first quarters of 2002 – 2003, and the second quarter of 2004. This sustained inflation has seen the price of the average property in Huntingdonshire more than double in 6 years. Prices have gone from £92,300 in the first quarter of 1999, to £184,388 in the corresponding quarter of 2005. This represents an increase of 99.8% in 6 years, or an average house price inflation of 19.6% per annum. Presently, the average house price in the District (as at June 2005 – is £178,752, a reduction in the last 3
months of £5,600, or 3.1% overall).

Local house price inflation is fuelled by a number of factors:

• A limited supply of flats/houses for sale (48% down on the previous year’s figures).
• Continuing low interest rates (4.75% for the last 11 months, recently cut to 4.5% in August 2005).
• The “ripple effect” of the in-migration of higher and middle income earners moving to the area because of lower prices, and good rail links to the capital, and a relatively short drive to Cambridge.
• Rising levels of employment in the expanding research and development, business services and high technology industries in the Cambridge Sub-
  Region (up 4% in the last 12 months).
• A local population age profile, where the relative proportion of households with children with adult earners, at the peak of their earning potential, is
  higher than the national average.

In any local economy, a significant proportion of households (usually around 30%) will at any time be unable to afford to become or remain homeowners, and will need to be accommodated in social housing, or the middle-to-lower priced end of the private rented sector. This report shows that this group priced out of owner occupation has grown, and that indicators exist to show that this trend will  continue to grow as:

• The earnings of younger, middle-income employees (i.e. “aspiring first-time buyers”) are not keeping pace with the rise in house prices.
• Lower-end earnings appear to be growing only very slowly.
• The pool of existing “entry level” housing is drying up – the “average” district wage of £22,412pa would allow a single person to purchase (assuming they had saved £8,600 as a deposit) a property worth £86,000
  (less than 3% of properties in the district sold for this price).
• New “entry level” housing is not being built in sufficient quantity.
• The cheapest type of accommodation in the district – flats and maisonettes – sell for an average of £112,000 – this requires a wage (assuming a 10% deposit) of £28,800, or a couple earning £22,000 each. Only 30% of Huntingdonshire residents earn the former and 45% earn the latter, leaving up to 70% of residents not earning enough to purchase the cheapest type of property.

Middle income households who have been priced out of the housing sales market, and who are not eligible on income grounds for social housing, will therefore tend to be housed in the private rented sector. Partially for this reason, and a recognition of a general cross-party political agreement that the private sector now plays a much greater role in the provision of low cost housing obliges us now to work closely with the private sector in this area of work.

This report shows that demand for this type of tenure is rising, but, while supply may also have risen marginally in the past year, it has not kept pace with demand, and is on nowhere near the scale necessary to replace the rented homes lost to the market over the past several years as former “negative equity” landlords have responded to the rising market by selling up. Rents have therefore increased. The report also shows that low-income private tenants lose out to higher earners, who do not depend on the housing benefit system, which is perceived as slow and cumbersome, and often not paying the whole market rent charged.

The report is downloadable from the link on the right of this page.