How Property Affordability in Derby has Changed…

The 6th June 2019 marked the 75th Anniversary of the D-Day landings and whilst watching the coverage and images on television, it prompted me to think of the huge changes that have happened to Derby, and more specifically, the Derby property market since WW2.

Back in 1944, the average wage in Derby was just over £5 a week and to buy an average car would cost you just under £600, yet this is a property blog, so…

The average value of a Derby property in 1944 was £1,197

In fact, in those 75 years, the average Derby house had doubled in price by 1961, then again in 1971, 1975, 1980, 1988, 2000 and 2006.

Now, a lot of those increases, especially in the 1970’s, were caused by hyperinflation, yet since the start of the 21st Century inflation has been kept low and since the Credit Crunch of  2008/9, whilst property values have been rising, they haven’t been at the rates experienced in the latter half of the 20th Century.

Property prices are irrelevant

I find myself saying the following phrase at least once a day when talking to people about property… ‘Its not what a property is worth, it’s what someone is prepared to pay’. Taking that a step further, nowadays, the price at which a property sells for is irrelevant, its whether someone can afford it.

Increases in Derby property values have produced huge increases in equity for many Derby homeowners and landlords, yet, on the other side of the coin also making housing unaffordable for other people.

The best measure of the affordability of housing is the ratio of property values to average earnings (i.e. salary/wages). The ratio works on the basis the higher the ratio, the less affordable properties are.

The Affordability Ratio

In 1997, the average value of a Derby property was 2.5 times higher than the average annual wage in Derby, in 2007 it peaked at 5.7, yet two years later it had dropped to 3.8 and since then it has been a bumpy ride but currently sits at 4.3 times higher.

It can be seen that even though property in Derby became more affordable after the 2007/8 property crash (i.e. the ratio dropped), in subsequent years, with house values rising but earnings/salaries not keeping up, the ratio started to rise. This has meant there has been a decline in affordability of property in Derby over the last five years – so for those on particularly low incomes or with little capital, it unfortunately means that buying a Derby home will never become an option.

Demand for rental property WILL grow

Therefore, the demand for private rented properties in Derby will continue to grow as many young Derby people are deciding to rent instead of buy their own house knowing that, when their parents pass away, the equity built up in their parents property will be passed down – and then they can buy in their 50’s and 60’s – just like it happens in Germany.

Yet, that is many decades away and with fewer Derby people wanting or able to save up the 5% deposit required by mortgage lenders, more and more people are looking to rent. Tie this in with the subtle shift in attitudes towards renting since the Millennium and less people jumping the on the bottom rung of the property ladder, this has driven rents and demand up in Derby over the last few years.

Yet, and this is an important proviso, the type, location and demands of Derby tenants has changed over that same time frame meaning you can’t just make money from buy-to-let as easily as falling off a log like you did in the early 2000’s!

If you are an existing landlord with us, or even with another agent in Derby, or someone thinking of becoming a first time Derby landlord looking for advice and opinion and what or not to buy in Derby, drop me an email or phone call and let’s start a conversation – I don’t bite and I don’t do hard sell… and maybe, just maybe, I could help you get better returns from your property portfolio.