We are currently living in a two tiered society with those who own their homes and those who do not. This situation was initially fueled in the 80′s with Thatcher’s right to buy, which led to the inevitable housing boom leaving many people in negative equity. Then in the 2000′s it had a resurgence as the availability of credit became increasingly accesible.
The problem is that as more people bought more homes, and saw a property as not just a store of wealth but also an investment, we saw a rise in the number of landlords, which in turn led to less homes being available to buy. Add to this the deminishing stock of social housing (thanks to the aforementioned right-to-buy), increasing population and a decrease in home building (lowest number of new homes built last year since 1923 in peace time) and you have a proplem of ever increasing demand and decreasing supply. This has led to a predicted forecast of house price rises of 21% over the next five years.
However, this is just the start of the problem. If rental was affordable compared to buying there would not necessarily be a problem, other than the “Englishman’s home is his castle” mentality that everyone must own their home. But that is not the case. Rents far exceed what is affordable and are set to continue on the skyward trajectory with a similar projection as for house prices with a 20% predicted rise over the next five years according to Oxford Economics.
This double whammy hits the population in two ways. The people who can afford to buy a house, to put down the average 25% deposit will buy a house, they then have the ability to let that house knowing that rental yields will increase as will the value of their house.
While those on the other side, those who cannot afford to buy a house will see their proportion of income spent on rent increase (already the vast majority are paying well over 50% of their take home income on property) which means they have little chance to save for a deposit.
We should also look at the affordability of homes in the two boroughs we are concerned with. The average bank mortgage lends 4 times the pre-tax salary. Some mortgages go to 6 times. If we look at the average wage in the boroughs the median in Merton has been reported as around £25,000 and the Wandsworth median as £31,000 (the average salary is extremely difficult to calculate). The average house price in Merton is around £422,000 and Wandsworth £507,000. This means for the average person to buy the average house they would need a mortgage of over 16 times their salary. Even if the average wage was twice the figures uncovered the average person could not afford to buy the average house in Merton and Wandsworth.
Avereage person cannot afford the average house in Merton and Wandsworth
There are 1.5m people on the waiting list for social housing, but at the moment the government is talking about selling off social housing. The right-to-buy may help alleviate some of the problem in the housing market, but any money made from the sale should then be used to replenish the social housing stock. However, in Wandsworth the council have announced they will not be doing this, they will be replacing social housing with new affordable housing. This is not the same thing and will leave many on the waiting list for social housing with no hope of finding somewhere to live.
So there are two parts to the solution that should be explored,
- building more houses, increasing the supply
- making it easier to buy homes and borrow money
For building new homes we have a number of brownfield sites already owned by GLA which could be recommisioned. We have targets for affordable housing which are not being met! In Wandsworth the target is much lower than the 40% target in Merton, but even then these targets are not being met. Finally we need to make sure that any social housing that is sold off under right-to-buy or for any other reason are replaced so that the stock of social housing should be increasing, not decreasing. The government have already announced a £250bn scheme to help 10,000 people buy their first home by helping with their deposit which does go some of the way towards a solution.
In terms of making it easier to buy homes, this could mean affordable homes, shared home ownership, and other schemes that allow people who are first time buyers to easily get on the housing ladder. One of the other problems is the initial cost associated with buying a house, you do not just have to save for a deposit you have to find 3% of the entire property value, which for the average value in Merton and Wandsworth is £465k, so the average person to buy an average house would require £14,000. Then there is home surveys, solicitors fees, mortgage arrangements, add another couple of grand there. This is a problem that central government needs to look at and address.
One of the solutions that may help in this situation (illiberal as it may be) would be rental controls. Even if for a short time. These could help people save money for a deposit and stop people being emnslaved in poverty purely to keep a roof over their head.
I have attempted to highlight some potential solutions. But the main purpose of this article is to represent the fact that in Merton and Wandsworth the average person cannot afford the average house and this situation is only going to get worse and for those at the bottom end of the scale the current councils seem to be dead set against helping you.