The housing market is calcifying
Open up any newspaper property section recently, and you’d be forgiven for thinking property prices were falling off a cliff. “Early warning signs” cries one commentator; “Mortgage approvals down!” another. The article normally includes some mention of mansion taxes or the Renters’ Rights Act, along with a quote from whichever interested party provided the most recent data. Perhaps, they suggest, scrap progressive tax measures or renter protections. Perhaps more government subsidy would help. Maybe another Help to Buy for new builds?
The truth is that property prices are broadly stagnant, at least in the last few years. Nominal prices have moved little. Adjusted for inflation, they have edged down slightly. Bank of England data show mortgage approvals slightly softening compared to last year. Yet none of this means housing has become affordable. Prices stagnating at the top of a decades-long climb is not a market correction. We remain in an era of historically stretched housing costs.
In the 1990s, the average UK home cost roughly four times annual earnings. Today, it is closer to eight or nine times earnings nationally but this is far higher in parts of England. In London and Oxford, the ratio is above 11. In other words, even if prices are no longer surging, they remain historically stretched.
Many in SW1 have heard about the Yimbys. The “yes in my back yard” movement is largely made up of younger voters staring up at the towering, unaffordable mountain ahead of them. What is often missed is the importance of the “my back yard” element of the movement. Property markets can be intensely local. We care most about affordability where we actually live. And house prices respond to a simple dynamic: how much supply there is, and how much demand there is within those areas.
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Britain’s house price boom has been on a steep trajectory for decades. Since the mid-1990s, UK house prices have more than tripled in cash terms. That boom has been fuelled by rising demand and too few homes. Demand has been driven by higher dual incomes, cheap borrowing, government subsidies such as Help to Buy, smaller household sizes, and rising expectations of space and quality. But geography has mattered most. When newspapers historically have written about soaring house prices, they have usually been talking about London and the south east, regions where jobs and population have grown strongly, while housing supply has failed to keep pace. Too many buyers, too few homes.
Policymakers can try to suppress demand or inflate it further through subsidies. Neither approach addresses the core imbalance. The simpler answer has always been to build more homes where people want to live.
Since Covid, the picture has become more complicated. Lockdowns genuinely changed the calculation for many families. Remote work allowed people to leave large cities for more space. Some have since reconsidered as long commutes proved awful and office policies shifted back. But part of that dispersal has stuck, and the places with hotter property markets are now paying the price.
Northern Ireland stands out. House prices there have risen by around 8 per cent over the past year, with rents climbing even faster. Meanwhile, prime central London has seen periods of decline, particularly amid uncertainty over the Autumn Budget and tax changes affecting high-value properties. In the upper end of the market, even exchange rates matter: globally mobile buyers and sellers are often responding to currency movements as much as local fundamentals. Many wealthy Chinese sellers in Chelsea are happy to sell at a loss when the pound is so strong, and RMB so weak.
Recent data suggests that stamp duty thresholds and the new premium home surcharge are leading to prices bunching just below levels where the higher tax kicks in, a predictable distortion created by cliff-edge tax design. This is something we’ve tried to fix at the Centre for British Progress in a recent proposal to make council tax fairer and phase out stamp duty. But the media focus on the top of the market, or on London alone, gives a distorted picture.
If you bought a home in my hometown, Derry, in 2007, its value today is roughly what it was then. For much of the country, housing has not delivered the spectacular gains imagined by popular television or the property pages. Our attachment to the idea of homes as ever-rising assets obscures the reality: for many households, housing is neither a guaranteed windfall nor remotely affordable.
Looking ahead, constrained supply and gradually easing interest rates could nudge prices up a few percentage points here and there. But the monthly cycle of headlines tracking minor movements misses the central point. Housing has rarely been this unaffordable relative to earnings in modern times. Stagnation in cash terms is not the same as affordability.
What we should track far more closely are price-to-income ratios. In Oxford, homes cost over 11 times local earnings. In Bristol, closer to nine or ten. In York, roughly eight or nine. Even in smaller towns such as Macclesfield, ratios are around seven to eight. In outer London boroughs like Barnet, they are well into double digits. These are the real figures, not house prices, that shape whether young people can live, whether families can settle near work and whether communities thrive.
Britain is not experiencing any dramatic housing market fix. Instead, it is continuing a period of stagnation while affordability remains stretched. This is a housing market that is calcifying. This is bad news if you are worried about wealth inequality. Even worse news if you’re young. Any narrative of “falling prices” is a distraction while unaffordability remains as bad as ever.
[Further reading: Revealed: Thames Water’s environmental and financial disaster]
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