(March 24): London homes are the most affordable they’ve been for a decade but remain out of reach for many people, highlighting the challenge facing the Labour government to fix Britain’s housing crisis.

The average price of a home in the capital last year was the equivalent of 11 years of earnings, down from almost 12 the previous year, according to Office for National Statistics (ONS) figures published Monday. The ratio was last lower in 2015.

London prices nonetheless remain well above five times annual earnings, the threshold below which values are considered affordable. Houses in the capital haven’t met that condition at any point since the turn of the century, with values around double the national average.

The improvement in affordability was driven by a decline in house prices last year. Stubbornly high borrowing costs, political uncertainty and the hangover from the cost-of-living crisis kept prospective homebuyers on the sidelines. Prime Minister Keir Starmer has pledged to build 1.5 million homes over the next five years to solve supply shortages keeping homeownership out of reach.

Home prices relative to wages improved across England. Average English homes cost around £290,000 (US$375,590 or RM1.66 million), or 7.7 times the usual earnings of a full-time employee in 2024, down from 8.3 the year before, the ONS said. House prices in England and Wales declined by £7,500 or 2.6%, while average earnings increased by £2,400, or 5.6%, in the 12 months to September.

London remains the least affordable UK region, with 90% of local authorities recording house prices equal to over 12 times annual earnings. The affordability gap between property in the capital and in the rest of England has widened dramatically since the global financial crisis in 2009.

The recent decline in house prices has been more pronounced in London. The 10 largest decreases in affordability ratios in England were all recorded in local authorities in the capital.

That’s helped support prospective homeowners in London. Recent figures from Halifax showed there were almost 45,000 first-time buyers taking out mortgages in 2024, up by a fifth from the year before.

The ONS measure of housing affordability doesn’t capture the impact of high mortgage costs or rampant rent inflation. Prospective homebuyers have also seen their purchasing power eroded by a surge in living costs in recent years.

“The real issue here is that wages have repeatedly not kept up with house price inflation, aiding the gap between the average wage and the average property price,” said Chris Barry, director at law firm Thomas Legal. “This tide is slowly turning given wage growth is now outstripping inflation by around a 2% surplus but this will have to be sustained for some time to have a meaningful impact.”

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