Sunday, 12 May 2013

Valuing the Property of England and Wales at County Level

When we, or indeed many websites, look at what is generally called UK House Prices, House Value or House Affordability it tends to be at a high level covering either the whole United Kingdom or England and Wales.  This is fine if you are looking for macro trends but doesn't give us much of a view at what is happening locally.

Given that we are hearing a lot about the North to South divide or even the London to rest of the UK divide let’s therefore deviate from that traditional macro view and get a bit more local by calculating House Value down to a County level.

To Value the market we are going to stick with our previous definition which is a simple Price to Earnings Ratio (P/E).  Regular readers will know that for Price we normally use Nominal House Prices as published by the Nationwide and for Earnings the Office for National Statistics KAB9 Nominal Earnings which are both published monthly.  Unfortunately these aren't available down to County level and so we need to introduce two new datasets.

For House Prices we will use the Land Registry House Price Index.  As a reminder this index uses repeat sales regression on houses which have been sold more than once to calculate an increase or decrease.  As it analyses each house and compares the latest buying price to the previous buying price it is by definition mix adjusting its data also.  This is then combined with a Geometric Mean price which was taken in April 2000 to calculate the index.  It is seasonally adjusted and covers properties from England and Wales.  It covers buyers using both cash and mortgages.  We are using the latest published data which comes from March 2013.  The analysis is arranged according to the Regions and County’s defined by the Land Registry and is shown in the Table below.  Unlike the mainstream media we are going to call high house prices bad (the County with the highest house price is London at £374,568 and is shown in dark red) and low house prices good (the County with the lowest house price is Merthyr Tydfil at £66,511 and is dark green) with all other prices shaded between red and green depending on house price.

For Earnings we are using the Annual Survey of Hours and Earnings (ASHE) which provides information about the levels, distribution and make-up of earnings and hours paid for employees within industries, occupations and regions in the UK.  Unfortunately, as the name implies, it is only published annually and so we will use the 2012 dataset.  To ensure that our Earners and Houses are located within the same County we’ll use the Earnings by Place of Residence by Local Authority.  This dataset presents weekly Earnings at both median (the middle point from each distribution) and mean (the average) levels which we have arranged into each Land Registry Region and County in the Table below.  We then multiply the data by 52 weeks to convert it to an annual salary.  We are calling low earnings bad (the lowest average earnings are £17,794 in Blackpool and are dark red) and high earnings good (the highest average earnings are £40,466 in Windsor and Maidenhead and are dark green) with all other earnings shaded between red and green depending on earnings.

By combining the two datasets we can see the valuation of houses across the County’s of England and Wales.  The formula is Value equals Price divided by Earnings (P/E) with the result also shown in the table below.

The Earnings, House Prices and House Values of England and Wales at County Level
Click to enlarge 

Depending on your region this data will tell you something different but a couple of observations:

  • There is nearly a factor of four between the best value County, Merthyr Tydfil, at 3.0 and the most over valued County, London, at 11.4.
  • There definitely appears to be a North and Wales to South divide when it comes to house value with the North and Wales winning that competition.


  1. Fascinating and an extremely valuable table. Thank you for the efforts you've invested in developing this.

    Crucially, it demonstrates the great divide between expensive houses relative to incomes in Southern England (the line appears to run roughly from the Wash across to Herefordshire) and more affordable housing in the rest of the country. There are of course a few pockets where exceptions are to be found, but this is a good illustration that at least two different markets are developing. Within the South, there is also the London market, where a super-bubble seems to be inflating, which is likely to prop up prices in surrounding counties as poorer (usually younger) people are forced to commute from further away. (Conversely, if the London bubble bursts it will be interesting to see the effect on prices in the South East).

    Another striking revelation is how few places today, outside the most deprived parts of the North and Wales, meet the criteria of what used to be thought of as affordable house prices, at up to 4x average income. I can't see UK house prices generally falling to that level in the near future, but this does show how deluded one would have to be to imagine that house prices can sustainably provide significant capital returns from this point forwards, without either massive government intervention or large rises in wages.

    1. Hi Faustus

      Glad you found it useful. A very good point on the old school 4x average income. I live the "it's not different this time" philosophy and so remain out of the UK housing market.

      Will I win or lose in the end. I honestly don't know given the Financial Repression and continual market manipulation being placed on us all. Only time will tell.


  2. Just wanted to post a quick comment to thank you for the post.

  3. I read this in the am and thought "interesting but so what", then I bumped into a international comparison of house sizes... we've lost the plot.

    1. Hi Nathan

      Interesting link. Of the sampled countries all seem to be building larger houses except Portugal, Ireland, Italy (so 3 of the PIIGS), Luxembourg, Sweden and the UK. UK new builds about 1/3 the size of our US friends.

      Not sure if this is good or bad news though. With a smaller house typically comes less running costs and less time spent maintaining it. I'm currently renting a house that is a lot smaller than I could afford enabling me to maximise my savings. The big question I'm asking myself is when I eventually buy will I go for something larger or will I maintain status quo freeing more time to live along with either more income in retirement or alternatively earlier retirement.


    2. All true, however my point was more we are paying 5 x the price per sqm* compared to the US, with average household income the same.

      So we're mortgaging our lives away to live in a shoe box, why ?

      * Calculated on the back of a cereal box using averaged numbers whilst half awake, likely to be bollocks.

  4. BeatTheSeasons13 May 2013 at 15:37

    But if you buy a house with a cheap (financially repressed) mortgage that is covered by the rental then you could still make money. If we get a big dose of inflation combined with continuing low interest rates then it's a good time to be in debt. And property is, of course, a 'real' asset, so should do ok in times of high inflation. Even if it's overvalued to start with then you still have a big 'margin of safety' if the nominal price of everything else shoots up over the next 10-20 years and you've got the leverage to benefit from even small rises - e.g if your LTV is 80% then every 1% rise in nominal value gives you a 5% capital return.

    However, it's probably a big risk and so I think I'll stick to owning one house for the moment!

    On a similar theme to your data, a new website has appeared recently highlighting the differences between Cambridge City and Cambridgeshire. Your table has the average price at £179,343 whereas this other website shows in Cambridge itself the average is a whopping £337,578 (both use Land Registry data). So even at a local level there can be huge differences based on desirability, proximity to well paid jobs, or perhaps even higher numbers of residents not dependent on salaries at all:

    1. Hi BTS

      One of the side effects of Financial Repression is that those in debt are helped at the expense of savers. The question becomes will they be able to execute on the aim. As I highlighted in my previous post I can identify at least two things they are forgetting.

      I don't even own a home to live in let alone a second one so you can see which camp I'm in.


    2. BeatTheSeasons14 May 2013 at 12:42

      I've re-read the previous article but I can only find one thing that i might be forgetting - that wages will probably fall in real terms.

      On that point, if over a decade or so:
      CPI went up 100%
      Wages only went up 50%
      House prices went up by a pathetic 25%
      And rent covered your interest only mortgage and maintenance costs.
      Then you have still made a capital gain of 125% if your LTV is 80%.

      Am I missing something? What is your 2nd point that I might be forgetting?

  5. This is very good as far as it goes


    I'm not sure that comparing average earnings with house prices is so useful

    Quite simply average earners down buy houses - below average earners rent from the council/housing association or get housing benefit and rent privately

    Average earners rent privately, maybe with some housing benefit

    Only above average earners own

    Granted there was a little patch from 1970 to 2005 when average earners might expect to be able to buy a house, but that was only a 35 year window

    I think, given all the press about income at the top of the tree growing hugely, that this might explain why house prices in the regions you have marked in red are so high

    Quite simply those are the places where there are a lot more people earning double the average national salary or more

    These are the house buyers - everyone else isnt

    1. Hi Anonymous

      I agree with you that low earners are more likely to rent than buy but it has always been thus. I haven't seen enough yet to even consider that we are in a new paradigm over the long term. I'm still in the new paradigms do not exist while history repeats camp.

      Of course only time will tell if I've been foolish.


    2. Really...

      If history repeats itself then most people aren't going to be home owners

      Read this blog from our own links section...

  6. Thanks for the work on this, RIT. It's more informative than national statistics.

  7. A few quick thoughts. I've worked in a few large cities (Plymouth and Bristol) over recent years that I thought looked over valued compared to where I lown property (but no longer live) in West Berkshire. To give an example.A flat in the mostly horrible area of Stonehouse in Plymouth (and a horrible looking flat at that) is £68,000. A neighbour in West Berks has been trying to sell her Chapel Conversion flat for £84,000 and has been on the market since around 2008 at least. That may look a vast difference, but the area of West Berkshire has a much lower crime rate, a higher number of educated residents,much higher income & employment rates better schools etc. So comparing £68k in worst of Plymouth to £84k for nice area of Berkshire, the Berkshire flat in my opinion is value for money. It's all very well comparing stats but those don't show the real value (going back to cost of everything, value of nothing). Although I have given just one example I've noticed other similar examples

  8. Thanks for the excellent data. I agree it is good "as far as it goes" because in the real world people generally buy a house as a couple and two salaries are considered by lenders. Also, how do these figures compare historically? Not trying to put you to any more labour, just saying that as a snapshot it is useful, but we can only see geographical trends here (which we knew already). Sorry, not being negative, it is a worthwhile exercise.