Welcome to the UK, where affordable housing can often feel like an oxymoron. The average national house price is £294,000, but someone earning the average annual salary of £33,000 can expect to borrow no more than £140,000, leaving a considerable shortfall. The typical first-time buyer is aged 32 and pays a £54,000 deposit for a £264,000 house, which is clearly out of reach for many people.
New builds make up about a fifth of the market. They are a particular issue for affordability, since they command a premium of about 10% over an existing home for the convenience of being new. But is this justified?
Housebuilders tend to blame things like the planning system, the costs of materials and labour for elevated prices. It’s also popular to blame land prices. The FT’s chief economics commentator, Martin Wolf, told the House of Lords Select Committee on Economic Affairs in 2016 that “it must be the case” that different land values for different uses are a “fundamental factor in determining the price of housing”.
The evidence to back up this kind of claim is hard to find. There is no single dataset or source that gives, for example, the land price for each new-build home sold, or any register of the price of land used for a development.
Our latest research project sought to overcome these difficulties by comparing various sets of housebuilding data. Our findings indicate that none of the usual explanations are accurate. Instead, housebuilders appear to be making ever greater profits.
