How did owning a home become so unaffordable in the UK?

Rajesh Pai
February 14, 2024
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As of early 2022, the UK’s economy appeared to be moving steadily, with low mortgage rates and controlled inflation. In recent months though, the dream of owning a home in the UK has become increasingly out of reach for many, while homeowners on a mortgage are experiencing a level of financial stress not seen before. The cost of living and the mortgage crisis is exerting severe pressure on household finances. Let’s delve into the complex factors that have contributed to this challenging landscape.

Structural Issues Supporting House Prices

Low Housing Stock: The UK faces a significant shortage of housing supply. Approximately 300,000 new houses need to be built annually to meet demand, yet only around 200,000 have been constructed on average in the last three years. Stringent planning permissions, especially in green belt areas, have further constrained construction. Demand for housing continues to grow, exacerbating the shortage.

Sustained Population Growth and Net Immigration: Despite modest economic growth and the potential effects of Brexit, the UK has experienced sustained population growth. In 2022 alone, the country recorded a net positive migration of 606,000 individuals, all in need of housing as renters or buyers. This demographic trend has bolstered property prices.

Below Inflation Wage Increases

Over the past 15 years, wages have failed to keep pace with inflation. Average weekly real pay (wages adjusted for inflation) in July 2023 was 1.3% lower than in 2008. In contrast, property prices have outpaced inflation. This widening gap between wage growth and property prices has....

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