Unpacking the UK Housing Market: Price Stability & Supply

Why doesn’t building more homes make house prices more affordable?

After all, one of the economics rules says if you increase supply, but demand stays the same, widget prices will decrease.

So, will Housing Secretary Michael Gove’s pledge to build a million inner-city homes on brownfield sites in 20 towns and cities change the math and push house prices down?

No. The influx of new homes won’t change the market much.

That’s because the new homes market is a fraction of the size of the entire housing market.

Building 300,000 homes a year only adds one per cent of properties to the 28 million existing homes in the UK and doesn’t affect prices.

Gove says he wants to unblock the planning system which holds up new developments. He wants housing corporations in Birmingham, Manchester and Liverpool to buy land with compulsory purchase orders to sell to developers for house building.

Local housing associations would then rent out the homes.

Meanwhile, property prices have stabilised across the country in the past month.

The Office of National Statistics (ONS) has reported on the market until the end of May 2023. Analysts say prices were up 1.9 per cent in the year to May 31, down from 3.2 per cent in April. Average house prices hit £286,000 - £6,000, up 12 months earlier but £7,000 on last year’s high in September.

How prices have changed where you are

The highest price hike was four per cent in the Northeast, while prices in the East remained the same as a year earlier.

London has the most expensive house prices, with an average price of £526,000.

House prices ‘stable’

The Halifax, one of Britain’s largest mortgage lenders, analysed house prices until the end of June.

The bank found prices dropped a marginal 0.1 per cent - the third month in a row prices fell and the most significant drop since June 2011.

“The resulting squeeze on affordability from rising inflation will inevitably act as a brake on demand as buyers consider what they can realistically afford to offer. While there’s always a lag effect when rates go up, many existing mortgage holders with variable deals or rolling off fixed rates will likely face an increase in the next year,” said Halifax director of mortgages Kim Kinnaird.

She also explained that new build house prices are faring better than resold homes.

Nationwide, another of the country’s big mortgage lenders, agreed prices in June were stable but down 3.5 per cent compared with a year ago.

The building society’s chief economist Robert Gardner says house prices are still high in relation to earnings.

“Deposit requirements are still a significant barrier for those looking to enter the market,” he said.

“A 10 per cent deposit on a typical first-time buyer home is equal to around 55 per cent of gross annual income – this is down from the all-time highs of 59 per cent prevailing in late 2022, but still marginally above the levels prevailing before the financial crisis struck in 2007/8.”

House price digest FAQ

The figures for average house prices and movements in property values can be confusing if you need to learn how to read the data.

Here are some of the most asked questions about house price indices.

Why are the average property prices different in each report?

The reports use different data to draw conclusions and take the data from different periods.

Nationwide and Halifax base their indices on customer data, which are much smaller samples than the national data analysed by the ONS.

Acadata's methodology includes analysis that no other index uses.

Each organisation collects data over different periods, making a direct comparison difficult.

What is the average house price?

There's no such thing as an average home. The figure is calculated from the total value of all transactions in the sample divided by the number of homes changing hands.

What are the asking and sale prices?

The asking price is the amount an owner wants to achieve from a house sale, while the sale price is the negotiated amount the buyer pays.

Which house price index is the best?

All have flaws because of the restricted data, but the one with the broadest sample comes from the ONS. Unfortunately, the ONS data is usually the last to market and out of date by two to three months on publication.