House prices 'will soar to ten times salaries'

13 April 2012

Around four million Britons have given up on the dream of owning their own home

Millions of young people will be frozen out of the market by an "inexorable" rise in prices.

The disturbing forecast came from the National Housing and Planning Advice Unit, set up to advise regions on their local housing needs.

It said there would be a stark division between the privileged few who can afford property and the majority of the population, forced into council housing or renting.

The agency urged the Government to step up housebuilding and loosen planning laws to avert a social crisis.

Only 174,060 new homes and flats were built in England in the most recent 12-month period. The Royal Institution of Chartered Surveyors says 250,000 should be built every year to meet demand.

The NHPAU said the housing shortage is partly a result of the Government's decision to allow unhindered immigration following EU expansion.

The average home in England now costs seven times the average yearly income. As recently as 2000 the multiple was only four.

NHPAU chairman Stephen Nickell, who is warden of Nuffield College in Oxford, said: "As affordability in the market sector worsens, more people are pushed either into the private renting sector, driving up rents, or into the hard-pressed social renting sector.

"Deprivation will increase and the situation will worsen in already deprived areas. This affects all of us.

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"The economy suffers from the consequent impediments to labour mobility, and an increasing quantity of taxpayers' money is required to deal with the social problems generated both by increasing deprivation and the inability of numerous key workers to find somewhere to live in the areas where they work."

Mr Nickell said demand for property is so intense that significant price declines are unlikely.

The NHPAU's research predicts that by 2026 only 40 per cent of people between 30 and 34 will be able to afford a home. Some 2.25 million will be excluded from the market.

The Government defended its housing policy last night, saying it had created two million more homeowners since 1997.

A spokesman said: "We fully recognise the importance of affordable housing for all, and have supported increasing new property completions to over 185,000 per year - the highest level since 1990.

"Over the next ten years, this will rise further to 200,000."

But RICS says Labour's homebuilding plans are nowhere near ambitious enough.

Senior economist David Stubbs said: "We have been banging our head against a brick wall on this. This is a situation that has got worse and worse.

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"We need a radical reform of the planning system and it's time for the Government to deliver."

The Bank of England decided against raising the base rate yesterday amid more evidence that a housing market slowdown is well under way.

The decision came as a survey from the Halifax showed a price rise of just 0.3 per cent in May – the lowest monthly increase this year.

A combination of rising interest rates, higher household bills and lower wage rises has capped what potential buyers are able to spend.

But some City analysts still expect the interest rate, currently 5.5 per cent, to reach 6 per cent by the end of the year.

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