Lower Quartile Affordability Ratios find North East most Affordable Region

In mid-July, the Government published affordability ratios by every local authority in the country up to 2015. The affordability ratios are calculated using ONS House Prices Statistics (based on Land Registry data) and earnings from the Annual Survey of Hours and Earnings. The earnings relate to the respondents’ place of work rather than place of residence. This means that affordability in commuter areas reflects the earning power of commuters. Ratios were published by lower quartile and median house prices and earnings. This article will explore lower quartile affordability ratios for local authorities in the North.

Since the introduction of the data in 1997, there has been a steady upward trend in the English lower quartile affordability ratio, rising by 3.45 point to 7.02 in 2015 (national and local authority level figures have been revised for 2013 to include revisions made to earnings and house price data) as Figure 1 shows.

Figure 1: LQ house price to LQ earnings (England)

affordability-chart

At the end of 2015, the average lower quartile affordability ratio for the whole of the North stood at 5.58; the most affordable region was the North East where there was a lower quartile affordability ratio of 4.87, followed by the North West (5.50), while Yorkshire and the Humber was least affordable with a ratio of 6.37.

It is no surprise, then that the most affordable sub-regions are in the North East. In Durham (3.63) and the Tees Valley (4.61) the North East has the two most affordable places in the North to buy a home. There are also affordable areas in South Yorkshire (5.00) and Merseyside (5.09).

The three most expensive sub-regions are dotted across the three northern regions. Residents of North Yorkshire (8.41), Cheshire (6.15) and Northumberland (5.98) require a larger slice of their income to be able to buy a home.

As Map 1 below shows, there are areas across the north with more affordable local authority areas – those with ratios of 4.5 or below but there is, along with Trafford, one large swathe of less affordable local authorities with ratios of over 8, stretching from southern Cumbria into North Yorkshire. The least affordable local authority in the north is Harrogate with a lower quartile ratio of 10.04, while South Lakeland (9.14) also has a ratio well above the northern average.

Map 1: Ratio of lower quartile house price to lower quartile earnings by Local Authority, 2015

affordability-map1

The current picture in the north is a result of year-on-year increases since the revisions in 2013. In those two years there was a 0.26 point increase on average across the three regions. Both the North West (0.31) and Yorkshire and the Humber (0.36) saw increases higher than the northern average while in the North East the increase was significantly lower than the average (0.12).

Indeed, both Durham (-0.13) and Tees Valley (-0.06) in the North East were the only sub-regions were there was a fall in affordability ratios and housing became more affordable. Conversely, Cumbria (0.61), North Yorkshire (0.54) and Northumberland (0.53) saw the greatest increases in affordability ratios.

Map 2 shows the change in affordability ratios by local authority. It shows, as in Map 1, south Cumbria features prominently. However, unlike Map 1, the authorities where affordability ratios have grown the most are pepper potted across the north. Again places like Eden and Harrogate feature with increases of 1.80 and 1.01 since 2013 respectively but also Barrow-in-Furness (1.07) and Scarborough (0.96) have seen significant increases over this period.

Map 2: Change in ratio of lower quartile house price to lower quartile earnings by Local Authority, 2013-2015

affordability-map2

By interrogating the source data for the affordability ratios, an explanation for the differing changes in the ratios may be gained. The relatively small change in the affordability ratio in the North East can be explained by both lower quartile house prices (6.2%) and lower quartile annual income (6.3%) increasing at a very similar level between the two years. In comparison, lower quartile house prices in both the North West (7.3%) and Yorkshire and the Humber (7.7%) increased significantly quicker than lower quartile earnings in these regions (2.9% and 2.5% respectively).

However, reasons for increasing affordability ratios may alter between geographies. Amongst the local authorities that are noticeable for the increase in their ratio include Barrow-in-Furness. Here, lower quartile earnings grew by 1.4% compared to an increase in lower quartile house prices of 8.7%. Elsewhere, while the 0.53 point increase in Northumberland can be partly explained by a 10.8% increase in house prices, this in coupled with a 4.3% fall in lower quartile earnings.

Contact: Barry Turnbull

barry.turnbull@northern-consortium.org.uk