Affordability of housing in the United Kingdom

United Kingdom housing affordability as described by mortgage payments as a percentage of take-home pay from 1983 to 2015

United Kingdom housing affordability as described by house price to earnings ratio from 1984 to 2015

The gap between average income and average housing prices changed between 1985 and 2015 from twice an average salary to up to six times average income. Median house prices in London the median house now cost up to 12 times the median London salary. In 1995, the median house price was £83,000, 4.4 times the median income. By 2012–13, the median income in London had increased to £24,600 and the median London house price had increased to £300,000, 12.2 times median income[8]

In 1995, the Bank base rate was 6%, in March 2009 it stood at 0.5% until August 2016 when it was further reduced to 0.25%.[9]

A semi-detached house for sale in London zone 5 (Croydon) in 2007

An analysis by the LSE and the Dutch Bureau for Economic Policy Analysis found that house prices in England would have been 35% cheaper without regulatory constraints.[10] A report by the Adam Smith Institute found that by using 4% of London's green belt, one million homes could be built within a 10-minute walk of a railway station.[11]

The Economist has criticised green belt policy, saying that unless more houses are built through reforming planning laws and releasing green belt land, then housing space will need to be rationed out. It noted that if general inflation had risen as fast as housing prices had since 1971, a chicken would cost £51; and that Britain is "building less homes today than at any point since the 1920s".[12] According to the independent Institute of Economic Affairs, there is "overwhelming empirical evidence that planning restrictions have a substantial impact on housing costs" and are the main reason why housing was two and a half times more expensive in 2011 than it was in 1975.[13]

The Campaign to Protect Rural England argued that "Green Belt land is important for our wider environment, providing us with the trees and the undeveloped land which reduce the effect of the heat generated by big cities. Instead of reducing this green space, we should be using it to its best effect. We know from our research that three-quarters (79%) of the population would like to see more trees planted and more food grown in the areas around towns and cities."[14]

Value of land and buildings in the UK from 1995 to 2016 (trillions)[15]

Property companies state that land values follow house prices and that a developer assesses what new build house price is achievable in any particular location with reference to prices and sales rates in the second-hand market and on nearby comparable new build sites. At a basic level (assuming no affordable housing, S106 or CIL), they then multiply that new build house price by the number of homes to be built on the land and to arrive at the gross development value (GDV) of the site. The underlying value of the land is then the GDV less the cost of development and less an allowance for profit.[16]

According to a study by Knoll, Schularick and Steger, up to 80% of the rise in houses prices between 1950 and 2012 can be attributed to the increasing price of land.[17][18] This is for two reasons. Firstly, before 1950 improving transport meant that more and more land was economically usable, but this effect subsided after 1950. Secondly, zoning restrictions did not allow the "utilisation of additional land".[17]

In 2015, the Department for Communities and Local Government shared the land value estimates for residential land, agricultural land and industrial land. It found that the average price of a typical agricultural plot was £21,000.[19]

Stamp Duty Land Tax is payable on property transactions in England and Northern Ireland. Tax is paid at different rates on different portions of the purchase price. For example, on a £600,000 house, no tax is paid on the first £250,000, and the portion (£350,000) in the £250,000-£925,000 tax band is charged at 5%, i.e. £17,500. This gives a total tax of £17,500.

Scotland and Wales apply their own tax to property transactions, replacing the Stamp Duty Land Tax. Scotland introduced the Land and Buildings Transaction Tax in 2015, and Wales introduced the Land Transaction Tax in 2018.

In 2011, Which? magazine found the national average estate agents' fees to be 1.8%.[21] But fees can range between 0.75% to 3% depending on where you are in the UK.[22]

There are four main types of survey: a valuation survey, a condition report, a homebuyer report and a full structural survey.[23]

Conveyancing fees vary according to the value of the property and the service provided.[24]

In April 2013, The Daily Telegraph reported that research by Moneyfacts showed the average mortgage arrangement fee to be £1522.[25]

The Joseph Rowntree Foundation has suggested replacing the current Council tax system based on bands of house prices with a system that would mean the tax was more closely related to property prices. This would increase taxes on the highest-priced properties and decrease them for the lowest. They claim it would also have the effect of reducing house price volatility.[32]

Land value tax is suggested by some as a replacement for council tax; it would be based entirely on land (i.e. location) value and not on the value of buildings built on a piece of land or improvements made.[33][34][35]

In 2015, the Bow Group, a conservative think-tank, produced a report suggesting a reduction in international investment demand of property. The report proposed limiting foreign residents to the purchase of single new-build properties, with penalties if sold within five years.[36] In 2016, London mayor Sadiq Khan launched an inquiry into housing costs in the city, also highlighting the effect of foreign investment.[37]

The government set up a £60 million fund to help councils deal with high levels of second home ownership.[38] In 2016, a referendum in St Ives, Cornwall found 83.2% of voters in favour of new housing projects being reserved for full-time residents, as many tourists frequent the area and Cornwall is popular for second home and holiday property ownership.[39]

From April 2016, a Stamp Duty surcharge of three per cent of the purchase price was required for those buying to let. From April 2017, buy-to-let mortgage interest payments will have higher rates of income tax relief phased out by the government.[40] Although, companies would not be affected by the new rules.[41]