National Housing and Planning Advice Unit

2 July: Top government adviser warns falling house prices not the answer to affordability problem

New research finds regional housing plans would lead to worsening affordability and drop in number of households.

Even if house prices were to fall by 5 per cent this year and 10 per cent in 2009 affordability prospects would not improve - that is the stark message from Professor Stephen Nickell, Chairman of the National Housing and Planning Advice Unit (NHPAU), the body set-up to provide Government with independent advice about the housing market.

"With affordability stretched and mortgage finance much harder to secure and more expensive, even with house prices falling the outlook for first time buyers is very difficult in the short term. And in the medium and long term the position is just as bad. As the financial system begins to ease then the under supply of new homes implied by emerging regional plans would support the next unsustainable upswing in prices, which will leave many potential buyers high and dry - locked out of owner occupation."

This analysis of current housing market conditions and prospects is set out in Affordability Still Matters, which was published today alongside new NHPAU research which indicates that emerging regional housing plans could result in 1 million fewer households forming by 2026 than official statistics project because of affordability constraints. The report indicates that regional plans would also result in increased pressure on the social and private rented sectors.

Stephen Nickell continued "There will be profound social and economic consequences for communities and future generations across England if we are unable to address the affordability problem. So, while inevitably there is a focus on short term prospects in the housing market and some uncertainty arising from this, it is vital that planners and decision makers keep an eye on the medium and long term. We must plan now for the upturn that we know will come."

Also released today is a new survey conducted for NHPAU by YouGov. A key finding is that 65 per cent of English people who expressed an opinion believe that the Government's aim to build 240,000 new homes a year is about right or not enough.

The YouGov research also found that:

  • 78 per cent of people support action by Government to address affordability problems;
  • Despite falling house prices 68 per cent of people think that house prices in their area are a problem;
  • 3.2 million people* who do not currently own their own home and want to, believe that they never be able to do so; and
  • Only 12 percent of people said that they could afford to buy the average priced house with their current household earnings and savings if they were starting out on the housing ladder for the first time.

* Estimated by NHPAU from 2001 census and YouGov findings. YouGov interviewed 2955 adults living in England online between 12-15 May 2008.

"The message and the challenge is clear" said Stephen Nickell, "We know that the house price cycle in England has many negative consequences for individuals and the economy. Over the next year or two we will feel these effects more keenly. If we are to moderate the house price cycle we must increase housing supply, delivering the right number of new homes, of the right type, in the right place and at the right time. We must act now to ensure that the next upturn does not follow the same path as those in the past."

Affordability Still Matters and The Impact of Worsening Affordability on Demand for Social and Affordable Housing: Tenure and Household Formation as well as results from the YouGov research will be topics discussed at the NHPAU annual conference taking place today at Church House Conference Centre in Westminster. The event brings together senior planners, housing professional and economists to discuss how to tackle housing affordability.

For further editorial information please contact Graeme Buck/Tom Pienaar/Jo Lloyd, Camargue, telephone 020 7636 7366.

Notes to editors

All reports are available from the publications section of this website.

About the NHPAU

The NHPAU is an independent body that has been set up to help make homes more affordable across England. It is made up of some of the country's leading economists who provide expert guidance to regional and national bodies to ensure we deliver the right number of homes, of the right type, in the right place and at the right time.

Since April 2007, planners and government have to consider affordability when deciding future housing supply. The job of the NHPAU is to tell them how they might achieve this and make a positive impact on housing affordability in England.

The Unit is chaired by Professor Stephen Nickell, CBE, FBA a former member of the Bank of England Monetary Policy Committee. He is currently Warden of Nuffield College Oxford and non-executive member of the new Statistics Authority.

The Unit is delivering a new research programme as a resource for regional partners and others on housing market affordability. It is also developing a toolkit to allow forward-looking economic and statistical analysis of the impact of planned housing provision.

Why the NHPAU was created

i. Economist Kate Barker's Review of Housing Supply in 2004 identified that the demand for housing is outpacing supply, and this is pushing up prices. 

ii. The Government wants to make housing more affordable across the country. What this means is building enough new homes, in the right places, to meet demand.

iii. Between 1997 and 2007 average earnings increased by 45 per cent (Source: ASHE, ONS) while the average house price increased by 171 per cent (Source: Communities and Local Government from Land Registry Data). The ratio of lower quartile house prices to earnings doubled in the same period.

iv. Barker's review produced a series of recommendations about improving the supply of housing in England. This included the creation of a body to provide expert advice on housing matters, particularly affordability. The NHPAU is the result.

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