The disparity between average earnings and house prices is reaching record levels in certain parts of the country.
According to the latest Hometrack UK Cities Index, the average Londoner now needs to earn 14 times their annual salary to be able to afford a home – the largest in the UK and more than double the UK ratio of 6.5.
Average annual earnings in London are £33,720, but the average price of a property has risen 86% in the last 8 years to £482,800, highlighting just how difficult it is to get on the property ladder in the capital.
Cambridge and Oxford also have double digit price to earnings ratios which are also well ahead of the average over the last 12 years.
In Cambridge, house prices have shot up by 84% since 2008, meaning buyers have to pay 14 times their average salary of £30,633 to buy a property.
Meanwhile in Oxford, buyers have to pay 13.4 times the average salary to buy a property worth £415,000.
Richard Donnell, Insight Director at Hometrack, said: “The impetus for house price growth is shifting from the affordability constrained cities in southern England to cities in the midlands and the north of England. Regional cities have more attractive affordability levels and house prices have significant potential upside for growth in the near term subject to the outlook for the economy.
“In cities where affordability levels are stretched fewer households are able to participate in the market and this reduces levels of turnover and leads to lower levels of house price growth. This process is underway in London where the annual rate of growth is close to its lowest level for three years and where the top end of the market is already registering falling prices.
“The Autumn Statement focused on the longer term challenges of addressing housing supply. This will have limited impact on the current profile of housing affordability in the near term which will be dictated by market forces and households’ expectations for jobs and the cost of borrowing.”
Stephen Smith, director at Legal & General Housing Partnerships, said: “This ongoing rise in house prices is certainly not surprising. The market is still suffering from a supply crisis, and with the price of property increasing well above wage inflation, first time buyers will continue to struggle to make their first step onto the housing ladder.
“Fortunately, there has been some good news this week. The extra support from the Government announced in Wednesday’s Autumn Statement, including £1.4 billion in funding for 40,000 affordable homes, will certainly help to address the struggle many first time buyers face. Measures like these will increase supply, hopefully subduing the stratospheric rise in house prices.
“However, the housing crisis is a long term problem that ultimately demands a long term solution. With the agenda now set by the Chancellor, it’s time for housebuilders to roll up their sleeves and make good on the Government’s promise of building a housing market that is fair for all.”
Average earnings and price to earnings ratio
| City | Average weekly earnings 2016(1) | Price to earnings ratio – current | Long run average (2002-16) |
| London | £33,720 | 14.2 | 9.6 |
| Cambridge | £30,633 | 13.8 | 9.5 |
| Oxford | £30,633 | 13.4 | 10.4 |
| Bournemouth | £26,473 | 10.2 | 9.0 |
| Bristol | £28,007 | 9.3 | 7.2 |
| Southampton | £27,245 | 8.0 | 6.8 |
| Portsmouth | £28,074 | 7.8 | 6.9 |
| Cardiff | £27,633 | 6.9 | 6.5 |
| Edinburgh | £29,104 | 6.9 | 6.5 |
| Aberdeen | £28,824 | 6.3 | 5.7 |
| Leicester | £25,343 | 6.2 | 5.7 |
| Manchester | £26,310 | 5.6 | 5.2 |
| Birmingham | £25,888 | 5.6 | 5.4 |
| Leeds | £27,492 | 5.6 | 5.6 |
| Nottingham | £26,530 | 5.2 | 5.0 |
| Sheffield | £25,745 | 5.0 | 4.8 |
| Newcastle | £25,698 | 4.8 | 5.1 |
| Liverpool | £25,503 | 4.4 | 4.7 |
| Glasgow | £30,304 | 3.7 | 4.1 |
Source: Hometrack
Average earnings and price to earnings ratio
| City | Average price | % yoy October 2016 | % uplift from post 2008 low |
| Bristol | £259,400 | 10.6% | 61% |
| London | £482,800 | 9.1% | 86% |
| Portsmouth | £218,600 | 8.3% | 42% |
| Cardiff | £193,000 | 8.0% | 32% |
| Birmingham | £145,500 | 7.7% | 25% |
| Manchester | £148,100 | 7.7% | 25% |
| Southampton | £218,200 | 7.5% | 42% |
| Oxford | £415,000 | 7.0% | 72% |
| Bournemouth | £271,400 | 6.9% | 42% |
| Nottingham | £138,300 | 5.6% | 27% |
| Liverpool | £112,700 | 5.5% | 15% |
| Sheffield | £129,300 | 5.5% | 18% |
| Leeds | £153,100 | 5.5% | 21% |
| Cambridge | £420,600 | 5.4% | 84% |
| Leicester | £156,500 | 5.4% | 28% |
| Glasgow | £114,700 | 4.0% | 13% |
| Edinburgh | £203,200 | 3.5% | 20% |
| Newcastle | £122,600 | 3.1% | 12% |
| Belfast | £126,700 | 2.1% | 22% |
| Aberdeen | £180,500 | -8.1% | 15% |
| 20 city index | £241,200 | 8.4% | 52% |
| UK | £203,700 | 7.0% | 33% |
Source: Hometrack
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