Full Methodology & Glossary
Overall Design
- We set out to build a simple model of a two-person household, with both persons commuting to the vicinity of London’s Piccadilly Circus for work, aiming to buy a property together.
- Our model calculates the gross income requirement per person that is necessary to support the lifestyle as defined by the assumptions panel.
- It does this by estimating the following amounts on a household basis:
- Commuting Costs to London Piccadilly, based on the Commuting Strategy;
- Housing Costs of the selected housing type;
- Childcare Costs;
- Disposable Income requirement
- If the household is a two-earner household, the required net take-home pay requirement is apportioned 50:50 to each earner (currently the most tax efficient earning distribution).
- The net income required is then grossed-up with reference to current UK income tax and national insurance thresholds.
Travel Times
- The colour-filled areas on the map are LSOAs (Lower Super Output Areas), as defined by the ONS
- These geometries can be found on the Open Geography portal
- All trips in our model are assumed to start from the LSOA's population-weighted centroid, which can also be found on the Open Geography portal
- We measured commute times to London’s Piccadilly Circus via the TravelTime API for notional trips conducted on the morning of August 14th and 15th 2024, starting from every station in England and Wales.
- We tested arrival times at Piccadilly Circus between 8am and 9am, every 10 minutes, and took the fastest result. This is to reflect the fact that ‘fast trains’ sometimes only run at specific times past the hour.
- We also tested departure times from Piccadilly Circus between 5pm and 6pm, every 10 minutes, and took the fastest result.
- On to this train time, we added the drive time from each population-weighted LSOA centroid to the nearest station with the fastest overall commute (nearest 10 stations were tested; overall fastest commute selected) to get the fastest possible commute from each starting point.
- This avoids the situation where the closest station to an LSOA is served by slow trains, but a slightly longer drive may get the commuter to a station served by a 'fast train'.
- A deviation from this strategy was taken for LSOAs within a 15-minute walk of a London Underground station in Zone 1 or Zone 2. Within this inner-London zone, it is assumed to be more efficient to use either the London Underground network, or a TfL Bus to get to Piccadilly Circus.
- For this limited number of stations, the commute time is assumed to be (on average, delays and disruptions permitting) within the "Daily" bracket, and to cost £3.40 per journey per day.
- We assigned each LSOA to one of the three strategies, based on their fastest travel time to Piccadilly Circus:
- Daily Commuting: These LSOAs are within c.1 hour of Piccadilly Circus each way. We assume workers commuting from this area need to be in the office 5 days a week.
- Sporadic Commuting: These LSOAs are within 1-2 hours of Piccadilly Circus each way. We assume workers commuting from this area need to be in the office 3 days a week.
- Multi-Day Commuting: These LSOAs are between 2 and 4 hours from Piccadilly Circus. We assume one inbound and one outbound trip per week, and 2 overnight stays in London, allowing for 3 full days in the office each week.
Commuting Costs
- We calculate the lowest-cost commuting strategy from each station – whether that’s buying a pair of single advance rail tickets, a return, or an annual season ticket.
- We assume no railcards or other discounts
- Advance ticket prices for both singles and returns were collected at a 6-week horizon to account for the cost reduction of buying trips in advance.
- We also add on the cost of two Zone 1 and 2 London Underground tickets for the connecting journey to Piccadilly Circus from the London National Rail terminal
- E.g. Commuting from Basingstoke would involve a national rail journey from Basingstoke to London Waterloo, and then a London Underground journey to arrive at Piccadilly Circus
- For Daily Commuting, we assume 227 individual commutes per year (252 working days - 25 annual leave days)
- For Sporadic Commuting, we assume 3 commutes per week for 40 weeks per year
- For Multi Day Commuting, we assume one return journey per week - with the cost of 2 overnight stays on top (£158 per night – the average overnight stay cost in London according to Statista)
Housing Costs
- House prices are the Local Authority average for each housing type (detached, semi-detached, terraced and flat) as at May 2024 (source)
- We assume:
- Stamp Duty applies to the purchase as per August 2024 UK stamp duty tax thresholds
- A 15% deposit on the purchase price
- A 30-year capital repayment mortgage at a 4.13% interest rate, in line with mortgage rates at the date of publication
- Transaction costs total £5,000
- We explicitly do not consider maximum mortgage sizing (e.g., as a fixed multiple of household gross income) when modelling housing costs
- The sensitivity of this parameter to prevailing credit conditions and the differing treatment of discretionary pay awards / self-employment from lender to lender make reflecting this difficult
Childcare Costs
- We assume a flat £1,500 per child per month net take home pay requirement to cover childcare and other related expenses
- However, we layer on top of this relevant tax incentives:
- Free childcare for working parents as described here
- Tax free childcare as described here
- Child benefit, as described here
- These tax incentives often vary with the number of children in the family and the income of the parent; we reflect these non-linearities in our calculations.
Disposable Income
- We assume a monthly disposable income requirement of £2,216 per household
- We reached this number by subtracting relevant housing and transport spend contributions from the average disposable income number published by the Office for National Statistics (housing and transport numbers are calculated separately within our model)
Education Outcomes
- We have devised our own means of assessing school quality around each commuting station.
- Our indicators focus on objective measures of school performance (exam results)
- We weight by the number of pupils at each school (larger schools matter more in our calculations).
- Our indicators are calculated as follows:
- Primary: We look at the 7 closest primary schools to each station as the crow flies. We add the number of pupils operating at the Expected level in Reading, Writing and Mathematics to the number of pupils operating at the ‘High Standard’ level for the three disciplines. (Hence, if a school was educating all of its pupils to the High standard, its score would be twice the number of total pupils). We then take the pupil-weighted average of the 7 nearest schools to get to a score for each station, and then rank all stations, and express the rank as a percentile.
- Secondary: We look at the 5 closest secondary schools to the station as the crow flies. We look at a single measure of performance, that of the “Attainment 8” Score for the school. See The Good Schools Guide for an overview of how Attainment 8 is calculated. Once again, we then take the pupil-weighted average of the nearest 5 schools to get to a score for each station, and then rank all stations, and express the rank as a percentile.
- Sixth Form: We look at the 3 closest Sixth Form Colleges to the station as the crow flies. We look at a single measure of performance: the sum of the top 3 marks achieved at A-Level for each pupil. Once again, we then take the pupil-weighted average of the nearest 3 colleges to get to a score for each station, and then rank all stations, and express the rank as a percentile.
- Our analysis explicitly does not address the complex needs of Special Needs / Differently Abled children - where school facilities and programs are heavily customised to the needs of the children. Our indicators explicitly exclude these schools.
Questions?
We appreciate that we’ve had to make a lot of simplifying assumptions in this exercise. The sketch of the two-person couple buying a house together whilst both commuting to Piccadilly Circus (and potentially raising children) won’t apply to many. Our hope is that it can at least serve as a template of sorts to explore housing affordability - or lack thereof - in the UK today.