Giving people a goal in life

[biotechpete]

This is mathematically invalid.

What you want to calculate is the fraction of people who don't own a property and have the borrowing power for say 80% of the cost of any large enough property within reach of their place of work. It's far more complicated.

Averages tell you nothing.

 

I'll let you work out that one then.

 

If averages tell you nothing, why do the ONS use the data to inform the government about housing affordability?

 

And yes it is more complicated, even than you have described. Because in a finite housing supply, people will have to move up the ladder for other people to get on it. So how do we know how people will afford to be able to move up? Statistically, the government look at averages.

[unbeliever]

I'll let you work out that one then.

 

If averages tell you nothing, why do the ONS use the data to inform the government about housing affordability?

 

And yes it is more complicated, even than you have described. Because in a finite housing supply, people will have to move up the ladder for other people to get on it. So how do we know how people will afford to be able to move up? Statistically, the government look at averages.

 

Pointing out the the supply of housing is finite is rather obvious and unnecessary.

If supply is infinite, then value (therefore price) is near zero.

 

The housing market already reflects houses on the market because people have already determined that they can afford to sell in order to move up and chosen to do so.

 

The government and the ONS do indeed make some use of averages. Nowhere near as simplistically as they have been presented here though.

 

Anyway let's look at averages:

Do you want to use the mean or median income? Why?

Also, please justify quoting these incomes for an individual rather than for a couple.

[Cyclone]

This is mathematically invalid.

What you want to calculate is the fraction of people (and couples) who don't own a property and have the (collective) borrowing power for say 80% of the cost of any large enough property within reach of their place(s) of work. It's far more complicated.

Averages tell you nothing.

 

And it's made more complicated by massive regional variation.

 

The 'average' person in London can't even dream about buying a property, but here in Sheffield housing is much more affordable, whilst income is lower, but not that much lower.

 

---------- Post added 04-01-2017 at 13:32 ----------

 

Do you want to use the mean or median income? Why?

Also, please justify quoting these incomes for an individual rather than for a couple.

 

Mean can be skewed by outliers quite significantly, unless you use a modified mean that excludes them.

Individuals need somewhere to live, they may or may not be in couples, but it's certainly not guaranteed.

However if we were looking at an individual then you might want to consider whether they could let a room in the house they are buying, thus making the mortgage considerably easier to service.

[unbeliever]

And it's made more complicated by massive regional variation.

 

The 'average' person in London can't even dream about buying a property, but here in Sheffield housing is much more affordable, whilst income is lower, but not that much lower.

 

---------- Post added 04-01-2017 at 13:32 ----------

 

 

Mean can be skewed by outliers quite significantly, unless you use a modified mean that excludes them.

Individuals need somewhere to live, they may or may not be in couples, but it's certainly not guaranteed.

However if we were looking at an individual then you might want to consider whether they could let a room in the house they are buying, thus making the mortgage considerably easier to service.

 

I agree about the median, but I wanted to see biotechpete justify it.

 

I agree with your points. There are far more single people than there are single-occupant dwellings for sale. The rent-a-room-out option also exists for couples I suppose.

 

I think we've made the point though. Comparing median income with average house price is not very useful.

[Cyclone]

Example of local variation (from the report that biotechpete linked)

 

Burnley, which was the most affordable local authority in 2015, had an improvement in its affordability ratio, with house prices falling from 4.5 times the average annual salary in 2014, to 3.9 times the average annual salary in 2015. This improvement in affordability ratio was driven by an 8.2% decrease in median house price and a 7.8% increase in median annual salary. This compares with a 1.6% increase in average salary in England and Wales overall, which suggests a different employment mix in Burnley could be driving the larger salary increases.

 

If I had to hazard a guess as to why I found a figure of 5* average and Pete found one of 9, I'd say it's because his figures are England and Wales and mine were UK.

[biotechpete]

Pointing out the the supply of housing is finite is rather obvious and unnecessary.

If supply is infinite, then value (therefore price) is near zero.

 

The housing market already reflects houses on the market because people have already determined that they can afford to sell in order to move up and chosen to do so.

 

The government and the ONS do indeed make some use of averages. Nowhere near as simplistically as they have been presented here though.

 

Anyway let's look at averages:

Do you want to use the mean or median income? Why?

Also, please justify quoting these incomes for an individual rather than for a couple.

 

As Cyclone points out, the mean can be skewed by outliers. But in fact, in the case of income, there aren't really 'outliers' as such (3 standard deviations is commonly used). Income distribution is negatively skewed so the mean is not representative of the data.

 

I (and the ONS) haven't quoted single person income. IIRC 9.19 figure the ONS produced for income/house price affordability, as I pointed out previously, is household income, which takes into account both single person and multi-person households. It's common for the under 30s to be living in households with more than 2 adults, so as far as I can see the household data is more representative than doubling the individual earnings figure.

 

Feel free to post your own data and/or thoughts though, since you are clearly sceptical of my admittedly cursory efforts.

 

---------- Post added 04-01-2017 at 14:11 ----------

 

I agree about the median, but I wanted to see biotechpete justify it.

 

I agree with your points. There are far more single people than there are single-occupant dwellings for sale. The rent-a-room-out option also exists for couples I suppose.

 

I think we've made the point though. Comparing median income with average house price is not very useful.

 

It's not useful to someone who thinks that housing is affordable no. But, the UK extends far outside Sheffield (or Burnley for that matter). So unless we talk about averages how else are we to consider the subject as as whole?

 

So I'm standing by my point. Not everyone can have the aim of owning a house. Fewer people can have that as a realistic ambition now than almost any time since WWII. The income/affordability data suggests, average people can't afford average houses.

 

---------- Post added 04-01-2017 at 14:15 ----------

 

Example of local variation (from the report that biotechpete linked)

 

 

 

If I had to hazard a guess as to why I found a figure of 5* average and Pete found one of 9, I'd say it's because his figures are England and Wales and mine were UK.

 

It is true that house prices in Scotland are lower, but I'm not sure how that impacts the figures.

A quick google says the UK household income figure is £22,044. The average UK house price £213,927. That's 9.7 times. My suspicion is that your 5x figure is based on older data.

[unbeliever]

 

....

 

So I'm standing by my point. Not everyone can have the aim of owning a house. Fewer people can have that as a realistic ambition now than almost any time since WWII. The income/affordability data suggests, average people can't afford average houses.

 

If average income is not sufficient to buy, how is it sufficient to rent when renting is more expensive?

[biotechpete]

And it's made more complicated by massive regional variation.

 

The 'average' person in London can't even dream about buying a property, but here in Sheffield housing is much more affordable, whilst income is lower, but not that much lower.

 

Just out of interest Cyclone, what are you basing that on? Income to price ratios?

 

---------- Post added 04-01-2017 at 14:18 ----------

 

If average income is not sufficient to buy, how is it sufficient to rent when renting is more expensive?

 

It's not in many cases. That's why the state subsidises rent payments through housing benefit.

[unbeliever]

 

It's not in many cases. That's why the state subsidises rent payments through housing benefit.

 

How many people making an average wage are so entitled? I suspect very few outside London.

 

If it's a lot (which it isn't), the solution would be taxing them less instead of paying them benefits, that would rather fix the problem don't you think?

 

So, I return to the question. How is it that people on average incomes (who are mostly not entitled to housing benefit) are able to pay rent but not buy even though rent is more?

[Cyclone]

Well, yes, income to price of house ratios. The ration in Sheffield is lower than it is in London.

 

I don't think anyone disagrees that housing is considerably more expensive than it used to be, the ratio has gone up whatever number it is (I'll check where that 5 times number came from in a minute).

And I've seen figures showing that there are lower numbers of young house owners now than there have been for a very long time.

To state that it is simply unaffordable though isn't right either, it's less affordable, but clearly 1st time buyers are still buying.

 

---------- Post added 04-01-2017 at 14:31 ----------

 

The data is for UK Q2 2015, so there seems to be some discrepancy with the ONS data (which is England/Wales only) (not just Scotland, but NI excluded as well). The source for that multiple is apparently nationwide (the building society). It's not clear whether it's considering household income, that might explain the difference... It's link to the source data is broken though.

 

Ah, this is probably the key

 

For UK first time buyers, the average house price is 5.1 times average earnings. In London, house prices are 9.2 times average earnings, whereas in the north, house prices are only 3.4 times average earnings.

 

It's not considering the whole market, but only 1st time buyers.

 

http://www.economicshelp.org/blog/5709/housing/market/

 

Skip to affordability index. This is looking at the % of income spent on mortgage. Low interest rates make housing more affordable than it would be otherwise. Which in turn (IMO) keeps the bubble from bursting.