Might local economies once again become the main driver of local property markets?
Over the last 15 or so years, the private rental sector and overseas buyers have, directly and via city centre investments, pumped money into provincial housing markets. Local buyers found themselves competing for homes with landlords and with those moving to their area to take advantage of a price differential or, just as often, because they could not afford to buy in their home city. This is how the ‘ripple effect’, works. Prices have thus been as much a reflection of the national economy and international events, as of the underlying local picture. Today, while demand from older buyers moving from the orbit of London and, to a lesser extent, Manchester & Leeds, continues to dominate the market in higher quality houses, there are indications that the influence of ‘outside money’ has passed its peak. There are also reasons to expect the gradual reassertion of regional economies and easing of housing shortages.
BARRIERS TO ENTRY
Over the last thirty years, the private rental sector has more than doubled in size to approaching five million homes today (20% of the total stock of homes). Overwhelmingly, the landlords have been new entrants, with portfolios of up to three properties. Also, for much of that period – especially 2005 to 2015 – overseas buyers were investing heavily in London, typically making up half of all prime central London purchases. This generated a sustained ripple of equity out from the centre.
Since then, stamp duty increases designed to deter landlords and overseas buyers have proved effective, while tax and regulatory increases have made small rental portfolios increasingly unprofitable. As a result, for the first time in many years, regional first time buyers rarely now find themselves competing with anyone, other than other first time buyers.
NOT QUITE SO DOMINANT
London and the South East still account for almost 40% of UK GDP. That said, it is notable that a growing number of the industries centred there - such as fintech and e-commerce - create jobs right across the country. Others, such as life sciences and AI/digital technology have hubs in several major cities and the growth in university education has proved a major boon to many cities and regions. Renewable energy – one of the biggest in terms of jobs created at over 250,000 – exists primarily across the North East, East Anglia, Scotland and Wales.
Collectively, these growing industries give hope that economic progress will, over the coming decades, be significantly more widely-spread.
GENERATIONAL EFFECT
The number of homes changing hands each year has been subdued since the start of 2008 (see table below). At first glance, this looks like a direct result of the banking collapse and the uncertain years that followed. It is likely though that another, demographic factor, is also at play here. By 2008, the great majority of the post-WWII ‘baby boom’ generation were in a home they had no reason to leave. Adults tend to move quite often in their twenties and thirties.
By 2008 though, all ‘boomers’ were over 40 and some over 60. If they were in a home they liked, why move – then or, indeed, now? As they age, however, the bulge in demand created when this generation was born 70 or so years ago, inevitably creates a corresponding bulge in supply, as they reach the end of their lives. Between them, owner-occupiers over 65 account for over five million of England’s stock of nearly 25 million homes, including some 750,000 by those over 85. Making a few informed guesses about mortality rates, the passing away of older home owners should see an extra 230,000 or so homes per year come to market over the next ten years alone.
This is more than the total number of new homes built each year for the last decade – which is just as well as, despite the doubtless sincere attempts by the current government to increase the annual rate of housebuilding, history suggests (see table right) that, unless backed by major, publicly-funded incentives, its wishes are not in the driving seat here.
There are then, good reasons to suppose that, over the coming decade and more, regional supply of housing will slowly improve. Just as significantly, perhaps more, demand for that housing should be driven more by the local economy and demographics of each region and less by a city, or even a country, far away. Which sounds like a good thing.
