Correlation between Unemployment and House Prices

HAMISH_MCTAVISH

Average house prices in the twenty local authorities with the highest rate of unemployment have risen by just £4,100 since 2009, while low unemployment areas have risen by an average of £65,000, according to analysis from Lloyds.

The raw numbers translate to increases of 25 per cent for the areas with the lowest unemployment, and just three per cent for the highest. Those figures compare to a 17 per cent average for Great Britain as a whole and 11 per cent for GB excluding London..

http://www.cityam.com/215859/uk-house-prices-what-effect-does-unemployment-have-cost-home

It'd be surprising if demand wasn't higher in areas with high levels of employment than in areas with high unemployment.

But interesting to see the figures...

If you narrow it down to just the ten areas with highest employment, the numbers are quite remarkable....

prices have risen by an average of 28 per cent in those areas since 2009 – 60 per cent higher than Great Britain and 150 per cent higher than Britain excluding London

Which will certainly increase the wealth gap between areas in Britain.

A spokesman from Lloyds noted that...

"The past few years have underlined the importance of local economic health in determining house price behaviour. Other factors, however, are also key drivers of house price trends including the strength, or otherwise, of housing supply"

Demand grows fastest in areas with robust local employment, supply remains constrained, therefore house prices go up.... Despite volume of lending remaining depressed at around half the levels before the credit crunch.

Nothing most of us haven't discussed previously of course, but still interesting to see just how big the gap really is.

Generali

HAMISH_MCTAVISH wrote: »

http://www.cityam.com/215859/uk-house-prices-what-effect-does-unemployment-have-cost-home


It'd be surprising if demand wasn't higher in areas with high levels of employment than in areas with high unemployment.

But interesting to see the figures...

On the face of it it's stating the bleedin' obvious but it is always worth testing a hypothesis.

As an aside, I reckon this adds some fuel to the theory that BTL isn't really driving house prices. BTL tends to be at the lower end of the market I believe, probably because the deposit required is smaller and also because someone that can afford a fat rent can afford a fat mortgage.

If the lower end of the market isn't rising as fast as the higher then presumably it's OOs driving prices.

HAMISH_MCTAVISH

Generali wrote: »

On the face of it it's stating the bleedin' obvious but it is always worth testing a hypothesis.

Indeed.

As an aside, I reckon this adds some fuel to the theory that BTL isn't really driving house prices. BTL tends to be at the lower end of the market I believe, probably because the deposit required is smaller and also because someone that can afford a fat rent can afford a fat mortgage.

If the lower end of the market isn't rising as fast as the higher then presumably it's OOs driving prices.

Yes I think that's a fair assessment.

On a related note there's some really interesting lending data kicking about showing just how much mortgage rationing has skewed ownership, consolidating property in the hands of an increasingly wealthier segment of society who can afford the larger deposits now required, I'll see if I can dig it up.

Generali

HAMISH_MCTAVISH wrote: »

Indeed.



Yes I think that's a fair assessment.

On a related note there's some really interesting lending data kicking about showing just how much mortgage rationing has skewed ownership, consolidating property in the hands of an increasingly wealthier segment of society, I'll see if I can dig it up.

The BoE came out with some research about 5 years ago(???) stating that BTL had a negligible impact on prices on average.

HAMISH_MCTAVISH

From the ONS:

The average for FTB's in 2007....

Income = £42,000
Mortgage Advance = £127,000 (LTV = 82%)
Purchase Price = £154,000

And the average for Q1 2015...

Income = £48,000
Mortgage Advance = £152,000 (LTV = 75%)
Purchase Price = £202,000

For home movers in 2007...

Income = £61,000
Mortgage Advance = £159,000 (LTV = 78%)
Purchase Price = £203,000

For home movers in Q1 2015

Income = £72,000
Mortgage Advance = £199,000 (LTV = 61%)
Purchase Price = £321,000



So the average Loan to Value has reduced while prices have increased, leading to markedly higher deposits for both FTB and Movers, in quite a significant way since the credit crunch.

There is little doubt property is consolidating in the hands of a wealthier but smaller percentage of society.

And that ongoing credit restrictions are also worsening the housing shortage and so indirectly driving up both prices and rents.

The question is, what comes next? (Another boom in prices now looks baked in, but what else?)

HAMISH_MCTAVISH

Generali wrote: »

The BoE came out with some research about 5 years ago(???) stating that BTL had a negligible impact on prices on average.

Yes, from memory, they calculated that BTL in the last boom added just 7% or so to prices but probably kept rents lower than they might otherwise have been.

Generali

HAMISH_MCTAVISH wrote: »

The question is, what comes next? (Another boom in prices now looks baked in, but what else?)

As increasing numbers of FTBs are [insert emotive term of choice] of the market then more pressure will come on the Government to 'do something'. I guess the interesting bit is what happens. Does the Government actually take genuine steps to have the private sector build a million + houses over the next five years? They put the laws in place to allow this to happen but building isn't happening at anything like an adequate rate.

Somehow, a lot more houses need to be built where people want to live. For the most part that means South of a line between about Birmingham and The Wash. There's no point in building houses in Wigan (other northern Hell Holes are available) as nobody wants to live there.

30 moderate sized towns should do the job.

HAMISH_MCTAVISH

Generali wrote: »

As increasing numbers of FTBs are [insert emotive term of choice] of the market then more pressure will come on the Government to 'do something'. I guess the interesting bit is what happens. Does the Government actually take genuine steps to have the private sector build a million + houses over the next five years? They put the laws in place to allow this to happen but building isn't happening at anything like an adequate rate.

I think the emotive term of choice you're looking for is "mortgage rationed out of" the market.

Credit is the great equaliser, and ready access to it allows the young to compete with the old, and owner occupiers with the BTL brigade.

Planning permission has an impact as well, particularly in the long term, but it's really very notable indeed that since 1990 the only 4 years we built more than 200K houses a year in the UK were 2004, 2005, 2006 and 2007.

The peak of mortgage availability correlated with the peak of housebuilding in recent decades, unsurprisingly, both went downhill rapidly when the credit crunch hit.

Somehow, a lot more houses need to be built where people want to live.

And where the employment exists to support them.

30 moderate sized towns should do the job.

All we need is every urban area to expand by 4%, or every urban area in half the country to expand by 8%.

At that point around 1.5% of the UK's land mass will be covered by residential housing.

Which in practical terms translates to it taking just 90 seconds longer to leave London by train....

And that's then enough housing to cure the current million house shortage and still have enough left to accommodate more growth.

Of course none of that can happen without significantly more lending and a fair bit more planning permission being granted.

the_flying_pig

The article doesn't say a lot to me.

Both prices and price changes (which obviously are hugely different things, as different as say the level of unemployment and the rate of change of unemployment) were incomparably higher in London (a medium unemployment area) than anywhere else in the country. What does that tell us?

silvercar

London maybe a medium unemployment area, but demand outstrips supply (for property) and that is why prices go up.

Expressing unemployment as a %age of the workforce hides the absolute figures, which are what is important in this case.

HAMISH_MCTAVISH

the_flying_pig wrote: »

... London... What does that tell us?

That employment levels in a local area have a significant influence on effective demand, but are not the sole determinant of effective demand, particularly in a global city prone to inward investment such as London.

The correlation on a UK-wide level is quite difficult to ignore though.

It would seem fairly daft to suggest that high levels of employment would not also be likely to stoke high levels of effective demand for housing, which of course, in the absence of sufficient additional supply is likely to drive up pricing.

But you crack on and give it a try if you must....;)