Hometrack reveals massive cost of extra bedroom

Amanda Jarvis

March 8, 2006

Detailed data on the structure of residential values by bedroom count is not readily available but the research from Hometrack shows how much extra an average homeowner will need to pay to make a step up the housing ladder.

Using data from the company’s property valuation system, the analysis shows the greatest financial leap up is for homeowners moving from a three bedroom house to a four bedroom house. The average uplift in value is 37 per cent or £64,032. In regions such as London the uplift is as high as £131,300.

The least expensive step up the property ladder, in proportion to the value of the home, is moving from a two bedroom to a three bedroom house, with the average increase in value at 19 per cent (£27,123) and in regions such as the South East and Wales only 15 per cent or £27,144 or £15,265 respectively.

Richard Donnell, director of research at Hometrack, commented: “The results of this analysis are driven by the nature of supply in local housing markets and the profile of demand and buying power of households in those markets. We estimate that nearly half of all private housing stock is made up of three bed properties. Properties with four or more beds immediately attract some scarcity value and this drives a higher average price.

“The jump from two bed homes is smaller because high house price growth over recent years has concentrated demand in the lower price ranges and this has compressed the price differentials.”

For homeowners, the analysis shows the scale of jump to access larger-sized housing which in some cases is significant. With affordability levels already stretched, households need equity to make any large jumps up the housing ladder, typically driven by inherited wealth. However, this price structure of the market taken together with a period of slow house price growth and higher levels of stamp duty are likely to result in lower levels of housing transactions.

Donnell added: “We are likely to see a continued trend in households staying put and looking to add value to their homes. However, adding an extra bedroom by way of a loft conversion is unlikely to result in homeowners realising the full potential uplift in value. This is because there are price ceilings in all local markets. Furthermore, adding a bedroom that is not in proportion or makes the home feel smaller may not add much value at all.”

Looking beyond the implications for homeowners this analysis into the structure of house prices has a range of potentially important applications for those involved in the planning and development arenas. The results of this analysis help policy makers understand the pressures on local housing markets as well as developers building the right type of housing.

Donnell concluded: “Only by understanding the structure of housing supply in an area can we look to deliver the balanced communities that lie at the centre of Government policy.”

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