Affordability and Migration within the Ayrshire Housing System AFFORDABILITY AND MIGRATION WITHIN THE AYRSHIRE HOUSING SYSTEM Final Report June 2007 1 Affordability And Migration Within The Ayrshire Housing System Acknowledgements We would like to thank the staff of East, North and South Ayrshire and Communities Scotland for their assistance, support and comments at all stages of this study. We would also like to thank to Mark Hordern of GSPC and Gwilym Pryce of the University of Glasgow for their assistance in supplying GSPC house price data. 2 Affordability And Migration Within The Ayrshire Housing System Contents Executive summary .............................................................................................. 5 1 Introduction .................................................................................................. 8 2 Economic and demographic change in Ayrshire 2000-2006 ..................... 10 3 Ayrshire housing markets 2000-2006 ........................................................ 33 4 The views of recent house purchasers ...................................................... 76 5 Prospects to 2012 ...................................................................................... 87 6 Conclusions and recommendations ......................................................... 105 Appendix 1: Industry definitions ....................................................................... 111 Appendix 2: Ayrshire HMA demographic profiles relative to Scotland ............ 112 Appendix 3: Internal migration within Ayrshire ................................................. 118 Appendix 4: Detailed definition of major and local HMAs ................................ 121 Appendix 5: Additional price and transactions data ........................................ 123 Appendix 6: Affordability estimates for Ayrshire .............................................. 126 Appendix 7: References ................................................................................... 138 Figures Figure 2.1: Average annual growth in jobs by sector, 1999-2005 (%) ............... 11 Figure 2.2: Average annual growth of the 10 largest industries, 1999-2005 ..... 12 Figure 2.3: Average annual growth of total employment, 1999-2005 ................ 13 Figure 2.4: Average annual growth of total employment, 1999-2004……..…...15 Figure 2.5: Demographic groups in Ayrshire 2003 and 2005 ............................ 20 Map 3.1: Ayrshire Housing Market Areas (HMAs) ............................................. 35 Map 3.2: Ayrshire Structure Plan Development Framework, 2006 ................... 42 Figure 3.1: Ayrshire sales 2000(Q1) -2006(Q2) ................................................ 43 Figure 3.2: HMA Share of transactions (all sales 2000q1 – 2006q2) ................ 46 Figure 3.3: Increase in second hand prices 2000q1-2006q2 by HMA............... 48 Figure 3.4: Increase in new build prices 2000q1 – 2006q2 by HMA ................. 48 3 Affordability And Migration Within The Ayrshire Housing System Figure 3.5: Increase in second hand prices 2000q1 – 2006q2 by HMA sub area ........................................................................................................................... 51 Figure 3.6: Increase in new build prices 2000q1 – 2006q2 by HMA sub area .. 52 Figure 3.7: Increase in second hand prices 2000q1 -2006q2 (%) ..................... 60 Figure 3.8: Average second hand price within the M77 „initial catchment area‟ by buyer origin.................................................................................................... 61 Figure 3.9: Second hand trends in the Ayrshire HMAs ..................................... 64 Figure 3.10: New build trends in the Ayrshire HMAs 2000-2006 ....................... 64 Figure 5.1: Forecasts for inflation and interest rates to 2010 ............................ 87 Figure 5.2: Forecast average annual growth of output and employment in Scotland by sector, 2006-2012 .......................................................................... 88 Figure 5.3: Forecast annual percentage change in house prices Scotland and UK, 2004-2010 ................................................................................................... 89 Figure 5.4: Average annual change in output (GVA) in Ayrshire and Scotland 2005-2012 .......................................................................................................... 89 Figure 5.5: Average annual change in output (GVA) by industry in Ayrshire & Scotland 2006-12 ............................................................................................... 90 Figure 5.6: Average Household Income in Ayrshire and Scotland 2006-2012 .. 92 Figure 5.7: Ayrshire Population Projections by age group 2004-2012 .............. 94 Figure 5.8: Ayrshire Household Projections 2004-2012 .................................... 95 4 Affordability And Migration Within The Ayrshire Housing System Executive summary This study examines housing market trends across Ayrshire with the exception of Arran, which has been subject to separate study of local housing trends and affordability problems. The key objectives set for the study were to: Identify recent house price trends and assess current affordability of owner occupation within and across the Ayrshire housing market and identify any issues arising. Explore migration patterns both within Ayrshire and between it and other areas. Investigate households‟ housing choices, and why they take the form they do. Specifically investigate the impact of M77 extension on the extent of integration of the Glasgow and Ayrshire housing markets. Assess how future trends might affect the structure and operation of the Ayrshire housing market. Housing markets have a strong spatial dimension. Looking at the pattern of migration flows of house purchasers it is evident that Ayrshire continues to have a complex geographic housing structure. It is made up of seven housing market areas. Four major housing markets - Ayr HMA, Kilmarnock HMA, Irvine HMA and the Three Towns HMA- operate across the core investment area outlined in the second Ayrshire Structure Plan. The remaining three local housing markets are North Coast, Garnock Valley, and Girvan and South Carrick Since January 2000 house prices have risen sharply in all seven HMAs but the Ayr HMA remains the highest priced market in Ayrshire. There has also been a widening of the house price distribution across Ayrshire, although the trend is most observable in South Ayrshire. This widening of the house price distribution is consistent with the ongoing restructuring of the Ayrshire economy and labour market, and within that a growth in better paid employment opportunities. House price inflation trends at the lower, middle and upper ends of the housing market in East, North and South Ayrshire are also broadly consistent with the recent patterns of migration. The Kilmarnock HMA has experienced high house price increases across the lower, middle and upper segments of the second hand market relative to most other HMAs. Although it has been suggested that this trend results from completion of the extension of the M77, analysis of available evidence does not confirm the existence of such an effect. Thus whatever the effect the M77 may have had or be having it is not a clear-cut one. The rapid rise in house prices has meant that by 2006 all seven HMAs had price to income ratios in excess of the DCLG recommended threshold of 3.5. On the other hand, the survey findings suggest that the property and locational housing choices of those able to afford to buy in the Ayrshire market remain largely unconstrained by the increase in house prices. 5 Affordability And Migration Within The Ayrshire Housing System Overall, available evidence suggests that local economic developments have played a part in influencing the operation of the housing market and house price trends but other factors such as changing commuting patterns, and housing market developments have also been important. Looking to the future, a combination of economic forecasts, GROS household projections and policy developments reviewed in this study suggest that: Further dispersal of the house price distribution in most if not all housing market areas is likely, with house prices at the top of the market continuing to rise more rapidly than at the middle and more especially the lower end of the housing market. If the rates of new supply anticipated in the Structure Plan are realised then, notwithstanding shorter-term pressure on land prices, overall supply constraints and inflationary house price pressures should both ease. Although it is important not to overstate future possible affordability problems in Ayrshire, it is unlikely that there will be a steep decline in the affordability pressures in the period to 2012. There is a strong possibility that adoption of wider search areas for suitable housing by middle and higher income households combined with higher rates of in-migration being encouraged through the land planning framework will: Offset any downward pressure on house prices that might have been anticipated from Experian‟s economic forecast that the Ayrshire economy will continue to under-perform. Lead, in the long term, to the gradual fusing together of the four housing markets in the core investment area. Mean that the current affordability pressures experienced by existing and newly forming households from within the existing local population in less well paid employment will not decline substantially.