UK Housing Market Affordability Crisis

Housing-Market / US Housing Jun 09, 2022 - 10:16 PM GMT

Most academic housing market commentators focus on the various measures of housing market affordability or rather unaffordability as house prices despite the price crash of 2008-2009 never fell to anywhere near the affordability levels of the early 1990's housing bear market lows and therefore ivory tower academics have continued to cling onto expectations that a further house prices crash is inevitable so as to fit in with their theoretical models of where house prices should fall to in terms of affordability that gets liberally regurgitated in the mainstream press, and looking at the graph below it is very easy to be seduced by something that on first glance appears obvious that house prices really did have a long way to fall to reach the affordability levels of the past.

Affordability Trend Forecast Feb 2008 - UK House Prices on Target for 15% Fall Despite Interest Rate Cuts

What the academics and mainstream press commentators fail to comprehend is TREND, or more precisely the TREND in AFFORDABILITY. The trend over the past 40 years has been for the proportion of household earnings spent on housing costs to rise from 20% 40 years ago to an average of 35% for Dec 2013, which is trending towards 50% by 2030. This is the big story that academics have missed as over time, decades in fact people are becoming conditioned to spend more and more of their earnings on housing costs as being the norm.

Affordability Forecast - Dec 2013

The reason why I expected affordability to trend ever higher again has its roots in the exponential inflation mega-trend as workers relentlessly face a loss of purchasing power of earnings and savings due to Inflation of the size of the population that is MOSTLY as a result of continuing out of control immigration as evidenced by the baby boom now underway mostly amongst migrant families of the past 15 years that acts to relentlessly put pressure on housing availability where annual construction (new builds) are not able to keep pace with even half of the new demand generated each year. Therefore workers have no choice but to commit an ever larger proportion of their earnings towards housing costs, the effect of which is that housing bear market affordability troughs are being ratcheted ever higher, which has left many academics confused as they remain fixated on their theoretical models that imply house prices must fall so as to return to affordability levels of past troughs as the real world trend passes them and their models by.

The Sept 2015 update showed the underlying relentless trend of affordability being once more ratcheted higher that looked set to soon breach the 2007 peak.

Whilst the current state has prices hitting the affordability buffer which means to expect a moderation in UK house price inflation i.e. I can't see how we are going to get a mania when house prices are this unaffordable, more likely is a measured bull run.

In my opinion I think it is inevitable that eventually the government will be forced to build a series of new towns that will grow into major new cities that should be announced over the coming years, which whilst encouraging economic growth will however also encourage further mass immigration, so even a series of new towns and cities may only make a marginal short-term difference to UK housing market affordability ratios.

This article in an excerpt from my most recent extensive analysis focused on UK House Prices Three Trend Forecast 2022 to 2025, where I pealed away multiple layers of the UK housing market of to arrive at a high probability trend forecast.

UK House Prices Trend Forecast 2022 to 2025

THE INFLATION MEGA-TREND
WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING
High Inflation Forecast for Whole of this Decade Due to Rampant Money Printing
Fed Inflation Strategy Revealed
Russian Sanctions Stagflation Driver
RECESSION RISKS 2023
UK Debt Inflation Smoking Gun
Britains' Hyper Housing Market
UK Population Growth Forecast 2010 to 2030
UK House Building and Population Growth Analysis
UK Over Crowding Ratio
Overcrowding Implications for UK House Prices
UK Housing Market Affordability
UK House Prices Real Terms Sustainable Trend
UK House Prices Relative to GDP Growth
UK House Prices Momentum Forecast
UK House Prices and the Inflation Mega-trend
Lets Get Jiggy With UK INTEREST RATES
Is the US Yield Curve Inversion Broken?
UK house Prices and Yield Curve Inversions
Interest Rates How High WIll they Go?
Work From Home Inflationary BOOM?
Formulating a UK House Prices Forecast
UK House Prices 2022 to 2025 Trend Forecast Conclusion
Peering into the Mists of TIme
Risks to the Forecasts
US House Prices Trend Forecast 2022-2024

That was first made available to patrons who support my work.So for immediate first access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $4 per month. https://www.patreon.com/Nadeem_Walayat.

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My Main Analysis Schedule

UK House Prices Trend Forecast - Complete
US House Prices Trend Forecast - 70%
Global Housing / Investing Markets - 60%
US Dollar / British Pound Trend Forecasts - 0%
Stock Market Trend forecast into End 2022 - 0%
High Risk Stocks Update - Health / Biotech Focus - 0%
How to Get Rich - 85%
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By Nadeem Walayat

http://www.marketoracle.co.uk

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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