Mind the (housing) gap

Britain’s housing market has long been more complicated than anyone would like to admit.

There is, we are told, a terrible housing shortage. Yet large parts of the country have so many vacant houses that they are being dismantled. We are told there is a disastrous gap between London and the rest of the country.

Yet dig deeper into the numbers and it turns out that the gap in housing affordability – as measured by the multiples of income locals would need to buy the average home – is about the same between Kensington and Chelsea and the next most expensive London borough, Westminster, as between Westminster and the cheapest part of England and Wales.

You can see that by looking at this chart here from this ONS report.

Those dots are showing you the level of house price affordability – a concept that can be quantified in different ways but in this case is house prices vs incomes – and look: they are mostly dispersed within a similar band. The further to the right those dots are, the more expensive housing is vs incomes, and you can see one dot sticking out like a sore thumb. That’s Kensington & Chelsea.

Now, none of this is to say that housing is not atrociously expensive in this country. It clearly is – at least in some parts of the UK. But the point is that the extent to which it is can be skewed quite heavily by the existence of this extraordinary market-within-a-market of mansions and uber expensive flats in the middle of London.

Consider this chart from that same ONS release. It shows that while the gap between the most expensive and least expensive area in the UK widened a lot up to 2018, it’s narrowed considerably since then.

But now remove K&C – a single borough – from that chart and here, below, is what you get. The blue line is the same as the bars above. The yellow line excludes K&C. Now suddenly it looks subtly different. The gap didn’t widen as much but far from narrowing much in recent years, it looks like it’s staying more or less the same.

Now in some senses it might feel a bit odd to remove a part of England from this set of data. Then again you could make the case that in many senses K&C is already a bit like another country, where many of the residents have incomes and assets that so enormously outstrip the rest of the country that they are hardly representative of the UK average.

I don’t know what profound lesson there is from this, save that the big gap in the UK isn’t necessarily between London and the rest but between smart bits of central London and the rest.

I wrote a little bit about housing in my Times column this week but didn’t get to include this nugget. However I did mention an interesting paper from Paul Cheshire et al at the LSE CEP. One of the things he points out is that during the pandemic the biggest increases have been in central London detached housing. The question, I suppose, is whether the sheer expensive of these homes is skewing the mean increase in house prices so much that it might be better to ignore them altogether.

Photo (c) Edinburgh Photography Flickr