affordability of housing in sandwell 2008

September 2008 Briefing Note 4

AFFORDABILITY OF HOUSING 2008

Affordability of private housing can be estimated by comparing house prices with income. This briefing paper aims to give an overview of incomes and house prices in Sandwell and the sub-region before moving on to explore the implications for the affordability of housing in the local market. It will also explore the options for those priced out of the market by focusing on the provision of affordable homes. Incomes Data concerning incomes in Sandwell can be collected using two methods. One of these obtains data on the earnings of individuals from surveys such as the ASHE1. However these surveys are unable to obtain data on entire households and only include the declared earnings of individuals. A focus on housing affordability requires information on levels of household income rather than individual earnings. This document therefore makes use of the household income dataset provided by CACI2. Estimates of household incomes are based upon survey work and are then modelled along geographical and socio-economic dimensions to fit small areas. The two datasets both suffer from less than perfect reliability at small geographies and are also unable to capture income from black and grey economies. However they are useful in tracking the economic position of Sandwell’s residents. Table 1. Median household income by region % change 2006 2007 2008 2007-2008 Sandwell £22,200 £23,752 £24,000 +1.0% West Midlands Region £25,626 £25,734 £27,358 +6.3% Great Britain £27,052 £28,383 £28,698 +1.1% Source: CACI, 2006/2007/2008 PayCheck data The 2008 CACI model for household incomes shows that the estimated median household income in Sandwell is £24,000 per year, compared to £27,358 for West Midlands region and

1 Annual survey of hours and earnings (ASHE) replaced the New Earnings Survey (NES) in 2004. Results from the survey can be found on the NOMIS website www.nomisweb.co.uk. 2 CACI offer marketing solutions and information systems to governments and businesses across industry sectors. For more info on the household income data visit the CACI website www.caci.co.uk.

Housing Affordability 2008

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£28,698 for Great Britain. Between 2007 and 2008, West Midlands median household income had increased at a faster rate than Great Britain and Sandwell (Table 1). Table 2. Sandwell Paycheck Benchmarks, 2008

Mean Household Income (£) Median Household Income (£) Birmingham 30,566 25,442 Dudley 31,826 26,769 Sandwell 28,198 24,000 Walsall 30,034 25,047 Wolverhampton 28,669 24,034 Black Country 29,751 24,903 West Midlands Region 32,713 27,358 England 34,884 29,123 Great Britain 34,417 28,698 Source: CACI, 2008 PayCheck

Of all the districts in the Birmingham and Black Country area, Sandwell has the lowest mean and median average income. Dudley has both the highest mean and median average incomes. Sandwell is more than £5000 below the English median household income (Table 2).

Chart 1. Median household income by town, 2008.

The CACI dataset is available for small geographies and we are able to show income levels at sub-borough level. We have included income data for the six Sandwell towns and the 38 MSOAs3 in the borough. The town with the lowest median household income is Tipton at £22,398, while Oldbury has the highest at £25,699. All towns are below the West Midlands and Great British median household incomes (Chart 1). Research Sandwell have produced an interactive instant atlas map4 on affordability issues in the borough. It displays data relating to household incomes, house prices, number of properties, number of sales and the affordability index. The key bits of CACI household income data can be seen in the instant atlas image below, for more information please see Map 1 (see appendix).

3 MSOA: Mid-level Super Output Area, a statistical region defined by the ONS, of which there are 38 in Sandwell. More information on MSOAs can be obtained from Research Sandwell’s technical note on Area Definitions in Sandwell, for access please visit http://www.researchsandwell.org.uk/research/navigation/briefingnotes.asp. 4 http://www.researchsandwell.org.uk/research/downloads/atlas_flash/Housing/AffordabilityMSOASM_house08_17/atlas.html


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When incomes are analysed at the MSOA level, three of the 38 regions within the borough have an average income above the Great British average (Bearwood, Great Barr and Warley South). The rest are all below average, and in the worst case, the Cape Hill MSOA shows an annual income £8,400 less than the Great British average. House Prices HM Land Registry's House Price Index is the most accurate independent house price index available. It includes a data set of completed sales and is based on repeat sales. Two sets of HM Land Registry figures are reported in this paper, the national comparison data and the local comparison data. Borough figures are slightly different between the two sets of data because they are calculated using different methodologies. National Context Like household income, property values in Sandwell are also below average. In 2007, the mean overall cost of a house in the borough was £132,666 compared to £219,397 for England & Wales and £175,274 for West Midlands region.


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Chart 2. Monthly property sales values in Sandwell And England and Wales, April 2000 - July 2008.

Chart 3. Percentage price change in annual mean house prices in Sandwell 2001-2007.

The mean value of sales has increased between 2001 and 2007 in Sandwell and England and Wales. However, property sales values started to decline in 2008. The peak and subsequent downturn of property sales values at the beginning of 2008 is visible for England and Wales. However it is not so visible for Sandwell, but it certainly seems that the borough has also reached a peak and entering a downward trend (Chart 2). The annual mean house price percentage change for Sandwell has increased at a slower rate in recent years, similar to West Midlands and England and Wales (Chart 3). Table 3. Percentage change in property sales values 2005-2007 by local authority area Detached Semi-detached Terraced Flat/Maisonette Overall Birmingham 10% 8% 9% 4% 9% Dudley 15% 11% 10% 9% 11% Sandwell 13% 12% 13% 14% 13% Walsall 9% 8% 13% 0% 7% Wolverhampton 9% 13% 17% -9% 9%

Source: HM Land Registry Compared to all property types across all authorities in Birmingham and the Black Country, the proportional increase in sale prices for detached houses in Dudley between 2005 and 2007 is the highest, followed by flats in Sandwell. In terms of overall growth, Sandwell has the highest rate of increase in the Black Country (Table 3). With all property types in Sandwell experiencing significant increases in the past few years, a similar increase has not occurred in household incomes making houses in the borough less affordable for Sandwell residents. This table is now a little out of date and does not take account of the recent turbulence in the housing market. Many of the properties have begun to experience a drop in house prices and the market has not been achieving as many sales has previous years. These issues relating to the credit crunch and the housing market are explored later.


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Local Context Across Sandwell as a whole, 5,753 properties were sold in 2007. This is approximately 4.6% of all properties in the borough and 6.5% of the private sector stock. Chart 4. Sandwell property sales by type, 2001-2007 Chart 5. Annual Median House Price Change in

Sandwell 2001-2007

Most of the properties sold over the past few years have been semi-detached or terraced houses. The sale of flats/maisonettes has increased since 2001 but from 2006 to 2007 there was a drop in the number sold. The sale of detached houses in Sandwell has fluctuated a little over the years but remains at a similar level (Chart 4). House price change of different types of properties have all been rising since 2001, however in the last couple of years this rise has begun to slow down (Chart 5). This slow down has become even more prominent during the course of 2008 and many media reports have commented on properties dropping in value. This will also be further explored in the section on the credit crunch. A local comparison of house prices can be explored through interactive maps showing 2007 data at MSOA level by time series (Map 2). It reveals that the borough’s most expensive properties are located in the north east of the borough (Great Barr and Hamstead) and parts of the south east (Bearwood and Warley South). Cheaper properties can be found in parts of Tipton and the Friar Park area in West Bromwich. An interactive double map has also been created for analysis of affordability issues in the borough, please see Map 3 for more information. Affordability Affordability can be estimated in a number of ways, but the most common is simply to take the property price and divide that by household income. This gives a figure which represents the number of years of income it would take to pay off the cost of the sale price of the property in one go. It does not take account of likely mortgage costs and so on. This figure is known as the affordability multiplier, and traditionally banks and building societies have been prepared to finance deals of up to three and a half times a household’s income, and hence a figure of 3.5 is affordable. As this figure increases in value, the less affordable a property is. If house prices are plotted against incomes in small areas across Sandwell, most data points fall in the low-price, low-income quadrant. Only the extreme north-east and south-east parts of the borough show higher incomes and higher house prices. Table 4 (see appendix) shows a complete overview of income, house prices and affordability data by local authority area. Map 4


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shows affordability multipliers for each of the MSOAs. As can be seen from Table 5, Rowley West, North Tividale, Princes End and Gospel Oak has the most affordable properties, while Great Barr, Hamstead West and Wednesbury South have the least affordable properties. ‘Credit Crunch’ and the Housing Market The ‘credit crunch’ and housing market turmoil has been a persistent news story in our national media during the past year. A document produced by the LGiU5 has shown that stories concerning the declining market have revolved around falling house prices, a rise in repossessions and an increased difficulty in obtaining a mortgage. Other issues include a rise in home owners with mortgage arrears and also more households falling into negative equity. Despite the fall in house prices, houses are not necessarily becoming more affordable; this is because there is an increased difficulty in obtaining a mortgage. This has had some major implications on affordability issues in the borough. Mortgage lenders have been less willing to finance home purchases and in some cases have withdrawn from specific sectors of the market altogether. This is reflected in the fact that nationally we have reached the lowest rate in 60 years for new sites of home building. These affordability issues and the increase in repossessions will have a great impact on local authorities. In particular there will be an increase in demand for the provision of more affordable homes. The final section explores the need for affordable homes. The Need for Affordable Homes The briefing note has shown that Sandwell experiences the lowest median average incomes amongst its neighbouring local authorities. Many areas of the borough are income deprived; this is shown by high levels of benefit take up and signs of poverty in parts of the borough. Despite average house prices in the borough being lower than national and regional averages affordability remains a major issue, low incomes in the borough and more difficulty in obtaining a mortgage ensure this. With repossessions particularly affecting low income households and estimates of large numbers of repossessions in 2009, the overall picture suggests a need for more affordable homes in Sandwell. Definition of Affordable Homes There are a number of affordable homes schemes aimed at eligible households whose needs cannot be met by the market because house prices are too high for incomes. Affordable homes should be set by taking into account levels of local income and local house prices. Types of affordable homes include; Social Rented Housing provided by a local authority or Registered Social Landlord (RSL) at price levels well below market level, Intermediate Affordable Housing most commonly intermediate rented accommodation provided at levels between market and social rented or shared ownership where the household owns part of the property and pays rent on the remainder. New Affordable Homes New developments in the borough which include over 15 properties require up to 25% of the properties to be set aside for the provision of affordable homes. However there is sometimes difficulty in obtaining this level for affordable homes. 5 Sillett, J., Credit Crunch: the housing fallout, Local Government Information Unit, (02/09/08).


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Chart 6. Affordable homes per 1000 existing dwellings.

Chart 7. Affordable homes breakdown in Sandwell and neighbours 2007.

The rate of affordable homes per 1000 existing dwellings in Sandwell has increased significantly in the past few years. Sandwell’s rate is higher than the Black Country average but behind the West Midlands regional and national rate (Chart 6). For all authorities most affordable homes provided were RSL social rented. Birmingham provided the highest number of affordable homes but that is understandable given its size. Sandwell was the only local authority to provide LA social rented homes (Chart 7). Document produced by:

www.researchsandwell.org.uk


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Table 4. Income, house prices and affordability by local authority area, 2007

2007 House Prices (£) 2007 Affordability (sale price/ income)

2007 Household income (£) Detached

Semi-detached Terraced

Flat/ Maisonette Overall Detached

Semi-detached Terraced

Flat/ Maisonette Overall

Oldbury 27,024 181,078 122,013 110,115 88,836 121,416 6.7 4.5 4.1 3.3 4.5 Rowley Regis 26,700 176,610 115,485 106,972 91,275 121,466 6.6 4.3 4 3.4 4.5 Smethwick 26,467 197,391 122,128 111,226 78,957 119,573 7.5 4.6 4.2 3 4.5 Tipton 24,816 157,585 104,969 92,252 64,647 103,796 6.4 4.2 3.7 2.6 4.2 Wednesbury 23,909 169,549 109,055 103,362 78,459 113,124 7.1 4.6 4.3 3.3 4.7 West Bromwich 26,489 200,506 129,137 112,774 80,673 127,957 7.6 4.9 4.3 3 4.8 Birmingham 25,368 329,937 165,283 133,713 140,494 162,403 13 6.5 5.3 5.5 6.4 Dudley 26,608 241,982 143,622 124,630 106,000 151,914 9.1 5.4 4.7 4 5.7 Sandwell 23,559 209,932 133,139 121,482 103,094 132,666 8.9 5.7 5.2 4.4 5.6 Walsall 25,188 250,287 139,839 120,153 118,473 147,659 9.9 5.6 4.8 4.7 5.9 Wolverhampton 24,416 242,285 135,700 112,835 102,588 138,296 9.9 5.6 4.6 4.2 5.7 West Midlands Region 25,734 294,233 161,020 132,295 131,129 175,274 11.4 6.3 5.1 5.1 6.8 England 26,389 336,666 198,014 176,144 199,466 219,397 12.8 7.5 6.7 7.6 8.3 Source: CACI/Land Registry (2007)


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Map 1. Median Household Income by MSOA (2008)

http://www.researchsandwell.org.uk/research/downloads/atlas_flash/Housing/AffordabilityMSOASM_house08_17/atlas.html

Cape Hill is highlighted in red; it has the lowest median household income in the borough. Click on this map for the full interactive version; alternatively visit the URL address at the bottom of the page.



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Map 2. House Prices by MSOA (2007)


Great Barr is labelled and highlighted in red, the MSOA has the highest median house price level in the borough. Friar Park is also highlighted in red, it has the lowest median house prices in the borough. Click on this map for the full interactive version; alternatively visit the URL address at the bottom of the page.



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Map 3. Median household income compared with median house prices by MSOA (2007)

click on this map to open an interactive version at http://www.researchsandwell.org.uk/research/downloads/atlas_flash/Housing/AffordabilityMSOADM_house08_17/atlas.html

A double map has been produced here comparing 2007 median household incomes and median house price sales. Click on this map for the full interactive version; alternatively visit the URL address at the bottom of the page.

http://www.researchsandwell.org.uk/research/downloads/atlas_flash/Housing/AffordabilityMSOADM_house08_17/atlas.html


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Map 4. Affordability by MSOA (2007)


Affordability rates are shown in this map, Great Barr is labelled and highlighted in red. It is the least affordable MSOA. Click on this map for the full interactive version; alternatively visit the URL address at the bottom of the page.



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Table 5. House prices, income and affordability ranks by Sandwell MSOA, 2007

Super Output Area (SOA)

Median House Prices

2007

House prices

rank

Median Household

income 2007

Income rank Affordability

Affordability Rank

Rowley West £114,975 14 £27,365 35 4.2 1North Tividale £112,500 11 £26,151 32 4.3 2Princes End and Gospel Oak £111,500 7 £25,588 30 4.4 3Friar Park £98,000 1 £21,882 8 4.5 4Uplands £112,500 11 £24,525 25 4.6 5Bearwood £139,000 33 £30,022 38 4.6 6Yew Tree and Tamebridge £125,000 31 £26,635 33 4.7 7Tibbington £98,998 2 £20,864 4 4.7 8Greets Green East £107,250 5 £22,585 12 4.7 9Wednesbury Central £115,000 15 £24,196 23 4.8 10Great Bridge £120,000 21 £25,178 28 4.8 11Oldbury and Rood End £105,000 4 £21,998 9 4.8 12Whiteheath £108,750 6 £22,589 13 4.8 13Tividale £116,000 17 £23,919 22 4.8 14Tipton Central £112,000 9 £22,894 15 4.9 15Langley £124,395 26 £25,309 29 4.9 16Rowley £112,750 12 £22,791 14 4.9 17Bristnall £121,475 22 £24,539 26 5 18Ocker Hill £99,000 3 £19,740 1 5 19Smethwick Central £113,500 13 £22,227 10 5.1 20Old Hill £123,975 25 £24,239 24 5.1 21Blackheath £123,000 23 £23,916 21 5.1 22Wood Green and Old Park £119,500 19 £22,979 17 5.2 23Brandhall £124,700 27 £23,862 20 5.2 24Stone Cross and Hateley Heath £120,000 21 £22,921 16 5.2 25Greets Green West £112,000 9 £21,110 5 5.3 26Cradley Heath £125,000 31 £23,460 19 5.3 27West Bromwich North £125,000 31 £23,141 18 5.4 28Warley South £159,950 37 £29,441 37 5.4 29Londonderry £123,750 24 £22,424 11 5.5 30Charlemont £144,000 34 £26,066 31 5.5 31Hamstead East £150,000 36 £26,662 34 5.6 32Cape Hill £115,500 16 £20,032 2 5.8 33West Bromwich East £119,000 18 £20,584 3 5.8 34Woods and Mesty Croft £124,995 28 £21,506 7 5.8 35Wednesbury South £125,500 32 £21,461 6 5.8 36Hamstead West £150,000 36 £24,677 27 6.1 37Great Barr £188,250 38 £29,072 36 6.5 38 Rank 1 = least income / lowest house price / most affordable

Source: CACI Paycheck (2007)/Land Registry (2007)

affordability of housing in sandwell 2008

Documents

levels of household

household income dataset

income levels

sandwell table

estimates of household

incomes data

sandwell towns

median average incomes