New-build homes make property more unaffordable, study shows

The supply of new-build properties – widely thought to help stem an unsustainable growth of house prices – may make owning a home in the UK more unaffordable, research by Nottingham Trent University shows.

The supply of new-build properties – widely thought to help stem an unsustainable growth of house prices – may make owning a home in the UK more unaffordable, research by Nottingham Trent University shows.

A market behaviour study by Dr Alla Koblyakova, of the University's Real Estate Economics and Investment Research Group, shows that for every 1% growth in the supply of new homes, mortgage payment to income ratios in the UK worsen by 9%.

"It's assumed that by increasing the supply of new homes, the overall cost of owning a property will come down," says Dr Koblyakova, from the School of Architecture, Design and the Built Environment.

"But this research shows us that the mortgage market behaves differently. When new housing comes on to the market, lenders relax their conditions and lend more money. And when consumers are more able to buy a property for a higher price, the price of property doesn't come down.

"This is a significant finding and is the opposite of what’s generally expected. It's important, therefore, that future affordability programmes focus not only on the supply of affordable housing, but also on the supply of housing finance."

The study – based on a sample of more than 1,700 mortgage holders between 2010 and 2014 – was taken from a range of sources including the Understanding Society Survey, Bank of England Data Archive, Land Registry data and European Mortgage Federation publications.

According to the Demographia International Housing Affordability Survey (2016), homes in the UK demonstrated a "seriously unaffordable" rating category last year. The house price to income ratio nationally was 4.6 nationally and 8.5 in Greater London. Affordable housing is graded as 3.0 or less.

"The main issue that property values in the UK go up faster than wages," added Dr Koblyakova.

"It's not possible for the Government to control house prices. But it is possible for politicians to motivate lenders to offer longer mortgage contracts to reduce the size of monthly mortgage payments.

"By increasing the duration of a mortgage to 30 years, for instance, it's possible to make owning a property more affordable for those on average incomes."

The study was presented at the European Network for Housing Research conference, Aberystwyth, Wales, last week.

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    The Queen's Anniversary Prize for Higher and Further Education was awarded to Nottingham Trent University in November 2015. It is the highest national honour for a UK university and recognises the institution’s world-class research. Pioneering projects to improve weapons and explosives detection in luggage, enable safer production of powdered infant formula, and combat food fraud, led to the prestigious award.

New-build homes make property more unaffordable, study shows

Published on 11 April 2016
  • Category: Press office; Research; School of Architecture, Design and the Built Environment

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