In 2021, average house prices rose by 15% in just one year according to the Office to National Statistics. From 7.9 to 9.1 times the average household income, the ONS considered this a ‘statistically significant’ increase. This trend has continued into 2022 with house prices rising by 0.4% on average every month since December 2021.

What is the cause?

There a many possible factors that could be responsible for the house price surge. Here are the most likely reasons:

#1: Supply and demand disparity

During the COVID-19 pandemic, new policies such as the stamp duty holiday, which lowered the cost of homes from July 2020 to June 2021, and the new mortgage guarantee, which helps homebuyers with low deposits, were introduced, which increased demand for houses. This led to there being up to twice as many buyers as sellers in the housing market, causing the prices of homes to shoot up.

#2: Cost-of-living increase

The current energy crisis has greatly increased costs for energy bills in the UK, which has reduced the amount of money the average homebuyer is able to spend on a new home, but there is just not enough affordable housing available. This has further increased the need for affordable housing in the UK.

#3: Not enough new affordable homes are being built

The Government promised in their 2020 Planning White Paper that the UK would see “radical reform unlike anything we have seen since the Second World War” in regard to the building of affordable homes, so what happened?

Inadequate planning systems are where the government are placing the blame, but property and construction experts from Reaction believe the lack of development comes from conservative members of parliament revolting against proposed loosening of planning regulations.

They also express that it is difficult to determine the specific improvements necessary to implement this “radical reform” because although current planning systems state that 10% of housing provisions should be put towards affordable home ownership, they assert that this figure is arbitrary and should be decided by local planning authorities, who will have a better understanding of how the local needs will determine the proportion of affordable homes. It is important to determine less arbitrary figures because affordable homes that do not sell will eventually revert to market sale homes, increasing their prices.

Who has this affected?

According to ONS, average house prices grew faster than average earnings in 91% of districts, meaning almost everyone in the housing market in the UK will be spending an extra 15% on their new home compared to in 2020. London and the rest of south-east England remain the most expensive regions in the UK, with Kensington and Chelsea specifically topping the list, where average house prices equate to 36.5 times the average income.

What can be done?

The most obvious solution would be to increase funding for affordable housing, but how can this actually be accomplished?

The Affordable Housing Commission suggested in 2020 that the government should increase investment to at least the level in 2010 in order to meet affordable home requirements. Some housing associations have suggested a government-backed fund where pension schemes would invest in affordable housing. Also, since pension schemes already invest in the private built to rent sector, this would be a feasible investment option.

What can homeowners do?

Homeowners can take control of the situation by supporting efforts by councils or members of parliament to increase funding for affordable homes, as well as encouraging schemes such as the one previously suggested by the Affordable Housing Association. For those currently in the market for a new home, prices don’t look as though they are going to drop anytime soon, but there are still ways you can make the process as easy and cost-effective as possible despite the circumstances. The best action you can take is to consider different locations and how house prices in these locations have been affected as well as taking advantage of low-deposit mortgages.