The Budget risks further entrenching regional housing inequalities, study finds

15 March 2015

  • Regional inequalities in property values have increased significantly under the coalition government.
  • Housing has become more affordable for low-earners in most parts of the UK, undermining the apparent rationale for schemes such as Help to Buy.
  • Changes to stamp duty announced at the Autumn Statement disproportionately benefit London.

Regional housing inequalities in the UK have become endemic since the financial crisis, and once again pose a significant threat to economic stability, according to a new report by the Sheffield Political Economy Research Institute (SPERI) at the University of Sheffield.

Evidence on changes in average house prices across the regions and nations of the UK shows that regional housing inequalities have significantly increased. Average house prices are now more than 30 per cent above their pre-crisis peak in inner London, more than 15 per cent above in outer London, and almost nine per cent above in the rest of the South East.

In contrast, average house prices in the three regions of Northern England remain 5-10 per cent below their pre-crisis peak.

One of the implications of these trends is that while the crisis of housing affordability in London intensifies, houses have become more affordable for lower earners in most parts of the country. The report shows that the ratio of median house prices to median earnings, and the ratio of lower quartile house prices and lower quartile earnings, fell significantly between 2007 and 2013 throughout Northern England and the Midlands (although they remain high in historical terms).

This evidence undermines the apparent rationale for the government’s Help to Buy scheme - designed to help lower earners get onto the housing ladder. The report therefore supports the view that Help to Buy is intended as a deliberate, short term housing market stimulus, and that, as such, the scheme contributes to the risk of repeating the housing market downturn which precipitated the financial crisis.

The report also shows that the reforms to stamp duty introduced at the Autumn Statement in December 2014 disproportionately benefit homebuyers in London, particularly the outer London commuter belt.

People buying averagely priced houses in inner London can expect to pay around £2,000 less in stamp duty, and people in outer London can expect to pay around £4,000 less. In contrast, people buying averagely priced houses in the Midlands and Northern England can expect to pay around £1,000 less.

Dr Craig Berry, SPERI Deputy Director and author of the report, said: "The UK housing market has returned to business as usual. This can be seen as a sign of economic recovery yet, equally, it also suggests that many of the problems associated with the onset of the financial crisis and subsequent stagnation remain salient. The coalition government’s decision to reform and, in effect, significantly reduce the tax burden on housing transactions indicates that it is relatively unconcerned by the economy’s dependence on the housing market, nor the acute regional inequalities which pervade the UK economy.

"The changes are typical of George Osborne’s economic stewardship, and in particular his recent budget decisions. The reform benefits, or is perceived to benefit, most of the country. Yet at the same, it disproportionately benefits households in London and the South East, reinforcing the capital’s economic supremacy. My fear is that, if Budget 2015 follows the same pattern, any short term economic benefits will end up causing more trouble than they are worth for whichever party or parties are in power after the general election."

The full report can be viewed at speri.dept.shef.ac.u­k/publications/speri-briefs/ . Today’s publication is the latest in a new series of SPERI British Political Economy Briefs. Through this series SPERI hopes to draw upon the expertise of its academic researchers to influence the debate in the UK on sustainable economic recovery.