Housing in the UK Less Affordable Since Price Rises Began... Well Duh!

Well, there's a shock: housing affordability in the UK has decreased in the second half of 2009 -- probably something to do with the fact that house prices have been rising and wages haven't.

None the less that is the news the Telegraph has broken today. The Nationwide affordability index told us nearly three months ago that UK housing had gotten less affordable since prices started rising. The news lies in the fact that the research behind today's report is from the revered Lombard Street Research. The article says:

"Whereas the others [other affordability indices] simply compare mortgage costs or gross incomes with prices, LSR's index compares prices with definitive household disposable income and the monthly mortgage burden. The comparison is key to working out whether homes are of an accessible price or not, since fast-rising incomes can make property more affordable."

The LSR index may take more detailed measurements to gauge true disposable income, but it is still working off the same price data, which makes it flawed as an indication of affordability.

The national average house price has risen in the second half of this year, in fact it is expected (as the article says) that Nationwide and Halifax will both report that the rise has now been sufficient for the price to end the year on a rise compared to what it started at. But that growth is based on strong growth in a few regions (London and the South-East). Almost everywhere else prices have either stagnated or continued to fall.

Not that I am saying house in the rest of the UK are affordable. I am simply pointing out that the LSR index is a flawed measure of just how bad the problem is -- not that any of the others are any better.

As I have previously written: homes in the UK have gotten unaffordable to first time buyers, making a correction inevitable -- the credit crunch was simply a catalyst for what needed to happen. During a correction like this (as we have seen before) prices fall until homes are affordable, no matter how long it takes. So the recent rises are simply prolonging the agony. For a full explanation of this read this article, which links to several others I have written on the subject.

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