UK house prices: What effect does the unemployment rate have on the cost of a home?

Billy Ehrenberg
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Areas with the highest unemployment (by claimant count) have had average house price growth of three per cent over six years (Source: Getty)

Average house prices in the twenty local authorities with the highest rate of unemployment have risen by just £4,100 since 2009, while low unemployment areas have risen by an average of £65,000, according to analysis from Lloyds.

The figures

The raw numbers translate to increases of 25 per cent for the areas with the lowest unemployment, and just three per cent for the highest. That means that in the twenty local authorities with the highest unemployment rates, house prices have grown behind CPI inflation. Those figures compare to a 17 per cent average for Great Britain as a whole and 11 per cent for GB excluding London.

If the lists are narrowed down to the 10 local authorities with the highest and lowest levels of unemployment, the difference is starker still: prices have risen by an average of 28 per cent in those areas since 2009 – 60 per cent higher than Great Britain and 150 per cent higher than Britain excluding London.

London has had the strongest house price growth in the country of late, but none of the 20 local authorities with the highest unemployment is in the capital.

Why it’s interesting

The correlation between areas with high unemployment and underperforming property prices is hardly surprising, but it does raise some interesting issues. Clearly demand to live in those areas is likely to be lower, and most people with money to buy a house will aspire to live in areas with better social conditions.

However, with house price growth in the areas with the highest unemployment often lagging behind inflation, and with wage growth only a couple of speeds above glacial (1.9 per cent according to the latest data from the ONS), the data shows those who have bought in the right areas are likely to be seeing their household wealth increase far faster, potentially aiding a widening of the pre-existing gap.

However, there are other factors at play here too. Areas with low unemployment tend to be rural, for example. While the correlation is interesting, it cannot be considered causal.

What Lloyds said

Andy Hulme, Lloyds Bank mortgages director, said:

There has been a very clear relationship between conditions in the local jobs market and house price performance during the period since the housing market downturn between 2007 and 2009.

Those areas with low unemployment and high levels of employment have tended to record above average house price growth. Areas with high unemployment and relatively low employment have, on the other hand, typically underperformed.

The past few years have underlined the importance of local economic health in determining house price behaviour. Other factors, however, are also key drivers of house price trends including the strength, or otherwise, of housing supply.

In short

The effects of this disparity are likely to be somewhat mitigated by lower unemployment rates recently, but this is another measure of how and where the financial crisis hit hardest.

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