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Rising cost of housing 'could drag economy down'

Rising cost of housing 'could drag economy down'

Wednesday 20 July 2022

Rising cost of housing 'could drag economy down'

Wednesday 20 July 2022


The rising cost of housing could drag Jersey’s economy down and must be dealt with as a priority, the Government’s influential economic advisers have said.

In its latest assessment, which will have a significant bearing on the next Government Plan and other areas of spending, the Fiscal Policy Panel (FPP) highlights the risks of a widening “deposit gap” for islanders, particularly for lower earning households.

The 'deposit gap'

This gap is, in essence, a measure of housing affordability.

In its latest recently published assessment, the FPP say: “House price growth, as in many other countries, has far exceeded both RPI [cost of living] and Average Earnings growth since the late 1990s. 

“A number of factors have contributed to this including limited land availability, depressed interest rates, a relatively high return on property assets for investors and competition for a limited number of properties.”

It adds: “Statistics Jersey produce a detailed housing report annual, including affordability indices and an estimate of the ‘deposit gap’. 

Housing index 2022.png

Pictured: House Prices compared with Retail Prices and Average Earnings Indices (index 1990 = 100).

“The ‘deposit gap’ represents the difference by which the median [midpoint average] dwelling price exceeds the affordability threshold, expressed as a factor of mean net household income (£60,100). 

“In 2021, the deposit gap for a two, three or four-bedroom houses was 1.5, 4.4 and 10.6 respectively."

From that, the FPP conclude that without a deposit which greatly exceeds the standard 10% of property value, a household with median income – £60,100 after tax – will be unable to affordably service a mortgage on a two-bedroom house.

Average house prices £150k more than in London

It finds: “In comparison to the UK, the average house price in Jersey was over £150k more than in London. 

“However, due to higher median earnings in the Island, the ratio of median property prices to median earnings is lower in Jersey than in London, although above-trend house price rises in Jersey in 2021 have brought the ratio very close to the most recent data available for London.

“The average gross annual salary in a lower earnings sector such as hospitality or retail is around £26,000-£30,000, which is less than half of the net household income used to calculate the deposit gap. 

“The affordability estimate is much worse for those below the median household income.”

London skyline City.jpg

Pictured: The ratio of median property prices to median earnings in Jersey is now very close to London’s.

Using empty homes 'must be a priority'

The FPP say that making use of some of the 4,000 vacant properties identified in the 2021 Census should be a priority.

“The proportion of vacant properties in the Island rose from 7% of private dwellings in 2011 to 8.3% in 2021. 

“Compared to England, this is three times greater than the vacant dwelling rate of 2.6% in 2021."

However, it adds: “These are not direct comparisons as the ONS measure of vacant dwellings is compiled from multiple data sources whilst the Jersey Census shows only a snapshot on Census Day."

Finance sector could be contributing to rising house prices

The FPP also notes that: “The success of the financial sector is adding cost pressures for other sectors of the economy, this could be contributing to the accelerated growth in house prices.

“This evidence suggests that there is some unused capacity in the current housing stock while housing unaffordability and lack of affordable rent supply poses a risk to economic growth. 

“There is a risk of reduced migration of skilled workers as the lack of affordable housing makes the islands less attractive to potential immigrants. 

“This should be addressed as a priority.”

READ MORE…

Express will be continuing to dig into the findings of the FPP throughout this week:

Later retirement and higher contributions if inward migration cut

‘Not enough money set aside for net zero’, Gov reminded

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Posted by Dave Mathews on
Think we all saw this coming. Jersey House Prices are so ridiculously high, they have actually become laughable. It is no wonder people are seeking easier lives elsewhere.
Posted by Scott Mills on
Pricing locals out of the market, ready for the influx of new money for the Jersey Monaco. Cheese on Toast £9 in that new pretend french bar in king street, where the greed is on show.
Posted by IanSmith97 on
In the meantime individuals contribute 82% of Jersey’s tax take whilst companies pay 18%. We are the ones getting fleeced.
Posted by Jon Jon on
Some day a bang will come in this Island ,property prices will crash like a pack of cards.This Island now is just pure greed, your either wealthy or struggling, middle Jersey has gone!
Posted by Keith Marsh on
It always has been the case that the Financial sector (inc. Solicitors and Accountants) together with States salaries have pushed the house prices higher.
The problem is, and it has been there for many years, not enough starter homes are built. Plans are cheap, old designs are still good and building costs are low. BUT there is not enough profit for developers hence they build a few luxury 4 and 5 bedroom homes.
That does not help.
Government should be building such small estates for 1st time purchasers ONLY.
Posted by Paul Troalic on
We have to do as Guernsey did and create two markets or maybe three. One would be for locals only with no exceptions, the second for non locals and the third for immigrant workers.
These must all be carefully controlled by law and no exceptions granted. As soon as an immigrant person loses their job they must be given a reasonable period to find other work or they are asked to leave the Island.
Sale prices must also be strictly controlled. No market forces or estate agents ballooning the price to encourage more price hikes. The key to everything is control on estate agents and selling agents. No price increases in property above the Jersey Cost of Living. No soliciting offers which will encourage price wars.
It will be tough but it is the only way to stop this ridiculous spiral.
I note that no estate agent has ever responded when I have suggested controls on their actions. Curious?
Posted by Private Individual on
Fully agree with Paul.
Posted by anthony turmel on
greed = estate agents, says it all.
Posted by Keith Marsh on
Very interesting Paul.
Not sure that price rises could be legally limited, without starting a black-market.
But totally agree with massive Estate Agents charges, and the secrecy in the market ~ needs to have better controls and firms forced to advertise their charges.
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