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In London, a house bought in December 2015 would have cost 12.2% more than a year earlier. The average price of a house in London (Q4 2015) was over £456,000. The average price of a house in the UK rose by 4.3% to over £250,000. These statistics have added to a growing sentiment that many people simply cannot afford housing.
Nationwide’s ‘House Price Index’ showed that the average house price in the South East rose by 6.7%, in Northern Ireland by 6.5%, in the South West by 3.8%. This trend it seen throughout the UK with the exceptions of the North West and Scotland who’s house prices changed by 0.6% and -1.3% respectively.
In an attempt to combat the increase in house prices the government had enacted various schemes and initiatives. In the March 2013 statement George Osbourne announced ‘Help to buy’, a scheme aimed at helping first time buyers get onto the property ladder. In January 2016 David Cameron also pledged to directly commission 13,000 new homes as part of his ‘national crusade’.
So why is there a housing crisis? What’s caused a situation where large parts of the country simply cannot afford a home?
The answer comes down to simple supply and demand. If we use London as a microcosm of the United Kingdom it becomes increasingly clear as to why there’s a housing crisis.
A House of Commons briefing paper on Migration Statistics by Oliver Hawkins outlines the number of migrants living in the UK, while also detailing what city/ region they stay. In 2014 it was estimated that 2,847,000 people living in London had migrated from another country, it is worth mentioning that a large percentage of that number comes from the EU. While most, if not all, studies have shown that immigration has a net benefit to the UK economy it also creates a supply and demand problem in housing. The increased number of people living in London means the demand for houses increases. There is a limited supply of housing in the capitol and thus the price increases. This trend is mimicked throughout most of the country.
Immigration is not the only factor pushing house prices up, the Bank of England setting interest rates as 0.5% for over 6 years also has a massive effect. Low interest rates decreases the cost of borrowing which in turn encourages people to take out loans and buy property. The increased number of people willing/able to get loans increases the demand for housing and thus increases the price.
In conclusion, the average UK house price will continue to rise. Until interest rates are raised and/or the government fulfils its pledge to increase the supply of housing it is unlikely this bubble will burst any time soon.
