East Mids house price growth continues to outpace other regions, whilst key workers are priced out of rental market 

Paul Norbury

House price growth in the East Midlands continues to outpace other UK regions as PwC’s latest UK Economic Outlook projects the region will see house price growth of 2.9% in 2019, 1.5% above the forecast UK average.

The average house price in the East Midlands is estimated to rise from £190,000 in 2018 to around £214,000 by 2022 according to PwC’s projections.

This comes at a time when the cost of private renting is proving to be a significant challenge for tenants, with those working in certain key public sector professions increasingly unable to afford rent. PwC’s report warns that this will potentially lead to a shortage of employees, such as NHS workers, teachers and police offers, in these regions, impeding both economic and social mobility.

Using the conventional benchmark that renting must cost less than 30% of gross annual income for it to be considered affordable, the report finds that an employee would need an annual salary of £23,800 to afford the median private rent in the UK, up £400 from 2017/18. This means that the country’s median private rent has just crossed over the 30% rental affordability threshold. The picture varies by region; Southern England, especially London, has rents way above this, making it extremely difficult for key professions to live there.

In the East Midlands, along with London and the South East, increases in rent have outpaced earnings growth, weakening (i.e. raising) rental affordability ratios over time. Currently, workers in the East Midlands between 22-29 years of age are spending 25% of their monthly earnings on rent, below the 30% threshold that is generally considered affordable.

Paul Norbury, office senior partner for PwC in the East Midlands, said: “Whilst house price and economic growth is good news for many and for the region’s ongoing prosperity, it is clear that affordability of housing continues to be a challenge for many. This latest data highlights some of the key public sector workers who are being hardest hit by the housing crisis. Private rent levels are on average more affordable across professions with the affordability ratio at around 25%, and whilst we are seeing this ratio in the East Midlands overall, this may not be the case in property hot spots like Nottingham, Leicester and Derby.

“The last five years have seen rental affordability ratios deteriorate and, in the UK as a whole, the amount spent on rent over this period has grown by 8%, while at the same time earnings growth remains relatively weak and below levels seen before the financial crisis. This is not only having  an impact on social mobility, it also has the potential to impact on productivity growth in the longer term by preventing people from moving to places, such as the East Midlands, where they can be most productive and access employment opportunities.”

Prison officers had the worst rental affordability ratios of key workers in the East Midlands in 2017/2018 at 26%, with primary and nursery school teachers and nurses at 24% and 23% respectively.

Paul Norbury added: “Many of the professions we are seeing hardest hit by the affordability of housing are people who are integral to our public services, especially in many regional cities where we have high concentrations of public service workers struggling to afford to rent.

“Looking ahead, reducing the cost of housing – both renting and purchasing a house – needs to be a priority and the public and private sectors should work together to improve affordability by increasing the supply of properties to put downward pressure on property price inflation.”

Robert Walker, Partner and UK Housing Leader, commented further that: “The taxation of residential property is now very complex, which our analysis shows is impacting the housing market and people’s ability to acquire, to upsize or to downsize. We need a coherent programme of property tax simplification and reform in order to help solve the housing crisis in the UK and provide an additional boost to the economy.”

PwC’s latest UK Economic Outlook report projects that UK economic growth is likely to remain subdued, growing in the East Midlands by around 1.4% on average in 2019 and a similar rate in 2020 – this is inline with the national UK growth forecast. The report finds that economic growth has slowed since early 2018 due primarily to the dampening of business investment as a result of Brexit-related uncertainty and heightened global trade tensions.

While consumer spending – supported by recent rises in real incomes – has continued to drive the economy so far, the housing market has cooled and job creation is likely to slow over the next year. In addition, business investment is likely to remain subdued until the situation on Brexit becomes clearer.