Affordability of homes in London

Meeting: 
MQT on 2015-03-25
Session date: 
March 25, 2015
Reference: 
2015/1131
Question By: 
Stephen Knight
Organisation: 
Liberal Democrats
Asked Of: 
The Mayor

Question

What is the current ratio between average London house price and median full-time annual earnings in London?

Answer

Answer for Affordability of homes in London

Answer for Affordability of homes in London

Answered By: 
The Mayor

Boris Johnson (Mayor of London):  Thank you, Stephen, and you are absolutely right that the ratio is bad and has been getting worse.  According to GLA estimates, the ratio between median house prices and median incomes was 11.1 in 2014.  That compares with, say, 4.9 in Manchester, 4.7 in Birmingham, although I might point out to you that it is not that much different from Cambridge and Oxford, which are about 10% and 9%.  In hotspot cities, we are seeing in this country - particularly in London - huge ratios between prices and median earnings. 

 

The answer is not to engineer a catastrophic fall in the value of people’s homes.  The answer is to build more houses of all kinds and that is why we have the highest housebuilding target in GLA history and we are building more affordable homes this year than any year since 1981, which is before Tom Copley was born. 

 

Stephen Knight AM:  Thank you, Mr Mayor, for that answer.  With the housing inflation we have seen since those figures you quoted, the ratio is probably more like 15 times.  You said last week in Haringey at People’s Question Time - and I think I quote you correctly - that house prices in London need to fall by 30%, although ‑‑

 

Boris Johnson (Mayor of London):  No.  What I said was that people want more affordable homes.  They do not want their own home suddenly to become more affordable.  That is the tragic reality of the human being, and that is how we all are.  I look around this Assembly and I see people who live in very, very substantial homes and, were the value of their property to fall by 30%, they would be very sad and they would feel that they had suddenly become much poorer.  In the sense that housing equity does underpin the economy and is absolutely vital to investment of all kinds.  They would be correct.  It actually would not be the right thing for the UK economy.  If you look at the periods when house prices have fallen dramatically, such as in the recession of the early 1990s, they were accompanied by catastrophic rises in unemployment and catastrophic falls in economic performance.  Be careful what you wish for.  If you want a fall in house prices ‑‑

 

Stephen Knight AM:  Mr Mayor, clearly, if we were to see falls in house prices, then we would get negative equity problems and nobody as a homeowner has an interest in seeing house prices fall, not unless they need a bigger home, which some certainly do. 

 

Boris Johnson (Mayor of London):  How much would you like to see them fall?

 

Stephen Knight AM:  Mr Mayor, it was you who gave the 30% figure.

 

Boris Johnson (Mayor of London):  I do not know what you are talking about.

 

Stephen Knight AM:  In this country, the Chancellor of the Exchequer sets a target for inflation in all sorts of consumer goods, including things like curtains and frozen chicken nuggets and many, many other things, but nowhere does anybody set a target for inflation in house prices.  Would it not be better, rather than seeing huge bubbles and crashes, which are very economically damaging, if we saw some policy aimed at stabilising house prices over the long term?  Would that not be sensible?

 

Boris Johnson (Mayor of London):  Yes, absolutely, and the point I am trying to make to you is that there is a thing called the law of supply and demand.  At the moment, if you look at house prices in some parts of this country, there are terraced streets, I am afraid, in the north of this country where you can pick up a house for a fiver or even less. 

 

Stephen Knight AM:  Mr Mayor, I want to get one last question in before ‑‑

 

Boris Johnson (Mayor of London):  That is a function of the market. 

 

Stephen Knight AM:  Mr Mayor, you are absolutely right.  This is about supply and demand ‑‑

 

Boris Johnson (Mayor of London):  Of course I am right.  I am right, and I am always right. 

 

Stephen Knight AM:  ‑‑ and, Mr Mayor, everybody agrees that we need to do more on the supply side, but that could take 30 years.  I asked you back in November 2014 what demand side measures you would support to control the high rates of inflation in London’s housing market, and you said, and I quote you, “I am open to proposals through additional council tax bands for more valuable properties, which would tend to reduce demand at the top of the market”, effectively a mansion tax.  It is fairly interesting, Mr Mayor ‑‑

 

Boris Johnson (Mayor of London):  No, I am not in favour of that.

 

Stephen Knight AM:  -- that you are now coming out in favour of such measures. Is this the sort of policy that you would like to see: more demand side measures to control housing inflation?

 

Boris Johnson (Mayor of London):  No.  It will not make a bean of difference.  Any practical difference you can make is to help the hundreds of thousands of people to achieve what most people want, and that is to have a share in the value of their home and to have the opportunity not just to rent, but to have a stake in the equity of their home.  People of all income groups should be given that possibility.  That is why the first step is going to be so important ‑‑

 

Stephen Knight AM:  Doing nothing has priced out a whole generation. 

 

Roger Evans AM (Chairman):  The Liberal Democrats are out of time. 

 

Boris Johnson (Mayor of London):  Actually, if you look at what we are achieving, as I say, we have delivered 85,000 affordable homes and we will do, contrary to all the prophecies of doom, more than 100,000 over this mayoralty.