House prices have risen by nearly 50% since last Financial Crisis

Since 2008, house prices have risen by a breathtaking 44 per cent. Where once the average property was worth £176,852, buyers can now expect to pay at least £277,000 for a home in the UK.

In some regions, the increase is even sharper. In London, house prices have risen from an average of £298,596 (January 2008) to £529,882 (February 2022), an astronomical 56%. In other regions however, the increase is less severe. The North West for instance, has seen average house prices rise by 31%, from £148,289 to £203,538.

Regardless of regional disparities, it’s clear that UK homes are costing buyers more than ever before. But how does the cost of property compare to inflation and other expenses? What other products, if any, are increasing in price, and at a similar rate? And how do our salaries fare in line with the steep rise of property?

Average house price by year (2008 - February 2022)

Data collected from the Land Registry’s UK House Price Index.

The table above depicts the rise of property prices in the UK from the year 2008 to February 2022. From 2008 to 2009, the market struggled under the weights of the Financial Crisis and the Great Recession. While house prices increased in 2010 to £170,364, they dipped once more in 2011 to £167,888, as the market grappled with the ramifications of the global economic downturn.

Since 2011 however, property prices have not faltered. In 2021, we saw some of the largest growth in 14 years, with an increase of 9% from 2020 to £259,575.66. If house prices continue to rise, we may see this record broken again by the end of 2022.

This significant rise in property value is rooted in a number of factors. The UK has faced an acute housing shortage for decades. With more buyers than sellers, competition for new homes has pushed prices up. Moreover, recent government incentives, like the Stamp Duty Holiday have helped catalyse house prices to new historic heights.

How has inflation affected our house prices?

Inflation is the rate at which the prices of goods and services increase over a period of time. Healthy economies have a low and stable rate of inflation, but high and unstable rates of inflation can be harmful and may cause people to be priced out of goods and services.

The most comprehensive way to measure inflation is the Consumer Prices Index with housing costs, or CPIH. Not only does the index cover consumer goods and services, but it measures the rise of costs associated with owning, maintaining and living in one’s own home, known as owner occupiers’ housing costs (OOH), as well as council tax.

Data collected from the Office for National Statistics’ Inflation and Price Indices.

On average, inflation rose to its highest in 2008 and 2011, where prices were 3.5% and 3.8% higher than they were in the preceding years.

While relatively low in 2020 and 2021, inflation is on the rise in 2022. It’s set to increase from 6.2% to 9% - the highest rate in over 30 years.

But where do property prices fit in?

Are properties rising in value in line with inflation?

The simple answer is no. Properties are rising in value far beyond the rate of inflation. As mentioned earlier, property prices rose at an astonishing 9% in 2021, completely dwarfing the CPIH’s inflation rate of 2.5% the same year. The previous year (2020) saw property prices rise by 2.8%, whereas inflation rose by just 1%.

To take a closer look, we researched the annual prices of some common consumer goods - white bread, bananas, and the cornerstone of any British household, Freddos.

Food price changes since 2008

White bread loaf

Data collected from the Office for National Statistics’ Inflation and Price Indices.

Bananas

Data collected from the Office for National Statistics’ Inflation and Price Indices.

Freddo

Here are some key takeaways from the datasets:

• White bread loafs were £1.19 in 2008 (CPIH 3.5%), rose to their highest in 2013 at £1.30 (CIPH 2.3%), but are now £1.14.
• Bananas were £0.90 in 2008 (CIPH 3.5%), rose to their highest in 2019 at £0.95 (CPIH 1.7%), but are now £0.90.
• Freddos were £0.15 in 2008 (CPIH 3.5%), rose to their highest in 2017 at £0.30 (CPIH 2.6%) but have dropped to £0.25 since.

Though we are in the middle of a cost of living crisis, consumer items have cost our wallets substantially more in the past. Whether or not they will drastically rise in the near future remains to be seen. Conversely, UK properties are, on average, worth 44% more than they were in 2008.

There are periods when these items have increased beyond the average rate of inflation:

As you can see above, there have been periods where white bread loafs, bananas and Freddos have increased beyond the rate of house prices and inflation. However, they are now significantly lower than they were at their highest value. House prices, on the other hand, have continued to rise at breakneck pace.

How have salaries changed vs house prices?

Perhaps the biggest indicator of growth in property value is its disparity to our income. In 1997, the Office for National Statistics recorded the average salary for a full-time role at £16,500 a year. The average house price was £63,085 - 3.8 times the average salary.

In 2021 however, the average UK salary for a full-time role was recorded as £38,131. In the same year, the average house price was recorded at £259,575.66, 6.8 times the average salary.

Salaries have increased on average by 79% while house prices have increased by an average of 121.8%

In less than 24 years, house prices have vastly outstripped our annual earnings by another 56%.

How big events and crises affected UK house prices

While property has boomed over the last 14 years, it hasn’t been without some turbulence. Since 2008, numerous events and crises have profoundly impacted the economy. How has the UK property market responded to these events, and how deeply have they affected its buoyancy?

Financial Crisis, Great Recession and Recovery (2008 - 2012)

The Great Recession saw thousands of UK workers lose their jobs. The economy shrank for five quarters in a row. By the end of 2011, almost 2.7 million people were looking for work.

In the table below, you can certainly see the impact. House prices plummeted by 9.2% in 2009. After regaining some of the ground they lost in 2010, they shrank to £167,888.41 in 2011, only to grow by just £1000 in 2012.

While certainly a turbulent period for the property market, house prices eventually began to rise once more. They have not fallen annually since.

Brexit vote with public voting in favour of UK leaving EU (2016 - 2019)

In June 2016, UK citizens voted in favour of leaving the European Union. A highly controversial vote, and one with long-reaching consequences, the market floundered in the months following.

However, by June 2019, average property prices had stabilised, having grown by almost £15,000 (7.7%). It seems the UK’s departure from the EU had a negligible impact on house prices.

Covid 19 Pandemic Crisis (2020 - 2022)

The ongoing Covid 19 Pandemic resulted in the largest global recession since the Great Depression. To combat its effect on the economy, the UK Government created a series of initiatives, including the Furlough Scheme and the Stamp Duty Land Tax (SDLT) Holiday. The SDLT Holiday is credited with having saved the housing market from turmoil. It’s also partly responsible for catalysing house prices into perilous new heights.

In the data below, you can see that prices dipped in May, just after the looming virus had invaded the UK and Boris Johnson announced the ‘Stay at home’ message. The following month saw the beginning of the SDLT Holiday and a return to market buoyancy.

Though prices dipped in the months following the end of the Stamp Duty Holiday in June 2021, they have since made a comeback. As of February 2022, properties in the UK are worth £277,000 on average.

Summary: First-time buyers face perilous new heights

There’s a fine balance between keeping the market both alive and affordable. Unfortunately, for many first-time buyers, it’s a steeper climb than ever to take that first step on the property ladder.

The speed at which property prices have risen over the last fourteen years does prompt questions about what government intervention, if any, might occur in the near future.

In April last year, the Mortgage Guarantee Scheme (MGS) was launched to give lenders the option to purchase a guarantee on mortgage loans for buyers with less than a 10% deposit. MGS can be used on new build homes and existing homes by first-time buyers, home movers and remortgagers.

This programme does seem to serve a purpose, aiding a similar level of transactions as Help to Buy Equity Loans did in their early days. The question is this: are government schemes that feed demand without addressing supply, the answer to the problem?

Launched in 2013, the Help to Buy programme was touted to be a major intervention in helping buyers secure their first home. However, many criticised its artificial inflation of house prices. Now, there are two such schemes running alongside each other, at a time when property values are already climbing at an alarming rate.

Whether some future government action will address these issues, remains to be seen. Perhaps a more consistent approach, like expanding residential areas and building more houses, would be a far more sustainable way to address affordability in the long run.