This month, I have two points of interest that cover both the rental and sales market. Firstly, the release of census data gives some interesting detail about the volume of people renting. I then have some guidance regarding the sales market for clients to consider (both sourced from Zoopla).
Latest Housing Census data: number of people renting soars by 28%
More than one in five people now rent in the private sector, while the number of those who own a home has fallen, according to the latest Housing Census.
Key takeaways
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The number of people renting a home in the private sector in England and Wales has jumped by 28% during the past 10 years
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A third of people own their property outright, while 29.7% have a mortgage or own a stake in a shared ownership property
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The majority of people live in a house or bungalow, but the number living in flats has seen the biggest increase since 2011
An estimated 5 million households – more than one in five - rented their home in the private sector in 2021, up from 3.9 million in 2011, according to the government’s latest Housing Census. Stretched affordability, caused by strong house price growth during the past decade, is likely to be behind the increase, as first-time buyers delay stepping onto the property ladder.There has also been a fall in the number of households who own their home, with the proportion of owner-occupiers dropping to 62.5%, down from 64.3% in 2011.The census also found that the number of households in England and Wales has increased by 1.4 million since 2011, to stand at 24.8 million in 2021.The number of new homes being built has failed to keep pace with this rise, contributing to the increase in house prices seen during the past 10 years.Here’s what else the census revealed:
How many people own their own home?
Across England and Wales, the percentage of households who own their own home has fallen during the past decade.However, due to population growth, the actual number of homeowners has increased.In 2021, around 15.5 million households lived in a property they owned, up from 15 million in 2011.Overall, a third of people own their property outright, while 29.7% have a mortgage or own a stake in a shared ownership property.One in five people rent their home in the private sector and 17.1% rent it through a local council or housing association - broadly unchanged from 2011.A lucky 33,000 households, around 0.1% of the total, live in their home rent free.This may be because they are property guardians, have a job that comes with a home, are live-in helpers or house-sitters.Homeownership rates were highest in the South East and South West at 67.1% and 67% respectively, and lowest in London, with the capital having the highest proportion of people who rented from both the private sector at 30% and the social sector at 23.1%.
What type of homes do people live in?
Almost 78% of people lived in houses and bungalows, while almost 22% lived flats, maisonettes or apartments.The remaining 0.4%, around 104,000 households, lived in a caravan or other temporary structure.The number of households living in a flat or apartment has seen the biggest increase during the past 10 years, with an additional 500,000 households living in flats in 2021, compared with 2011.There was also an increase in the proportion of people living in detached and semi-detached houses, while the number of people living in terraced properties fell.This is likely to be because fewer terraced properties are being built compared with other properties, according to the National House Building Council.Unsurprisingly, people in London were most likely to live in a flat at 54%, compared with 21.6% in the South East and just 11.4% in the East Midlands.
Zoopla House Price Index
Key takeaways
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UK house prices increase by 7.2% over 2022 but the slowdown is gaining momentum
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Sellers are accepting 4% discounts on asking prices to achieve a sale
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Affordability and value for money are key to the market outlook for 2023
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House prices in affordable markets are less exposed to higher mortgage rates than in high-value markets where price growth has been slower
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Flight to rural and coastal areas moves into reverse
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Flats and urban areas expected to fare better in 2023
Upward momentum in house prices falling away quickly
House prices have risen 7.2% in the last year, an increase of £17,500 for the average UK property.The underlying rate of quarterly price inflation has slowed from more than 2% during the summer to just 0.3% in the last 3 months - an annualised growth rate of just 1.4%.Zoopla expect to register quarterly price falls in the first half of 2023, dragging the annual growth rate into negative territory by mid-year.It's the same pattern across all regions of the UK as weaker demand from higher mortgage rates, cost-of-living pressures and low consumer confidence hits price growth across all markets. Sellers continue to accept larger discounts to asking prices to achieve sales. The gap has grown to 4% in the last month, from 0% in early October. We expect discounts to widen further in 2023.However, at this late stage in the year, fewer sellers reduce asking prices as they wait to see what the market holds in January before making any changes to pricing.
The flight to rural and coastal locations runs out of steam
A key trend over the last 2 years has been the search for space. A proportion of buyers have looked to relocate to rural and coastal areas, pushing up demand and house prices more quickly than in other areas.Some of the largest gains in house prices over the last 2 years have been across Wales, the South West, Norfolk and east Kent.This trend is reversing and these markets are seeing market conditions cool.Coastal towns and rural areas in the south of England - such as East Kent, Torquay and Portsmouth - as well as the wider Lake District area (Lancaster postal area) and mid-Wales (Shrewsbury postal area) have all recorded a greater slowdown in buyer interest and new sales over 2022 than other areas.The initial wave of pent-up demand was brought about by more working from home and a spike in retirement. This looks to have run its course for now, as the coastal and rural areas are offering less value for money and there are fewer discretionary-motivated moves from cost-conscious buyers.
Housing markets in urban areas will fare better in 2023
Buyer interest remains stronger in urban locations where jobs are being created and there are more services.Family housing in city suburbs and commuter areas has registered strong buyer interest over the last year, while demand in city centres has been weaker as a result of more working from home.Postal areas including Bradford (BD), Swindon (SN), Coventry (CV), Crewe (CR), Milton Keynes (MK) and Southend (SS) are registering above-average buyer interest in 2022.All these areas have their own employment base, but they are also close to or have good transport links to larger employment centres like London, Leeds, Manchester and Birmingham.Continued employment growth will stimulate housing demand over 2023 in these more affordable city regions.
Affordability is the key to the outlook for house prices
Affordability is the primary factor looking ahead to 2023 and beyond, and will be influenced by mortgage rates, household incomes and the actual level of house prices.The more unaffordable a local market, the more households are priced out, weakening demand and impacting sales volumes and pricing. The opposite is true in more affordable markets where house prices tend to be lower.Higher mortgage rates increase the income needed to buy and worsen affordability for those buying with a mortgage (7 in 10 sales). The impact is the greatest in high-value areas where mortgages are bigger.Looking back over the last 5 years, house prices have certainly risen fastest in more affordable markets. The chart shows a clear relationship between house price inflation (2017-2022) and current house prices for every postal area in the UK
More affordable markets will see lower price falls in 2023
Most local housing markets have recorded house price gains above average earnings growth (+22%) over the last 5 years.The highest price increases since 2017 have been recorded in the Oldham (OL) postal area (+47%). Other high-growth markets include Newport (NP), Swansea (SA) and Bolton (BL) where house prices are lower. We expect house price growth to slow in these higher-growth markets in 2023.Our national view is UK house prices falling by 5% next year. But price falls in these more affordable markets are likely to be below average as the hit to buying power from higher mortgage rates will be less than in the high-value markets. This is supported by the evidence of continued above-average demand in more affordable urban areas.
Flats are becoming better value for money
The pricing of flats has also underperformed the rest of the market.Apartments make up around 1 in 5 homes in the UK, but price inflation for them has lagged behind growth for houses, exacerbated by the search for space and concerns over cladding and leasehold charges.The chart above tracks the average price of flats and houses since 2002. The average price of a London house is 1.7 times the price of a flat, up from 1.4 times a decade ago. The same is true across the rest of the UK, where the price differential is currently 2.1, the highest for 20 years.We expect increased demand for flats in 2023 as buyers seek better value for money.This will be supported by improving sentiment towards flats as the government moves to ensure cladding problems are remediated in most buildings. Only a small proportion of the UK’s apartments are impacted by cladding, giving opportunities for buyers seeking better value for money in 2023.
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