In 2020, regional house prices in England rose 8.2%, their best performance in 15 years. This is double the 4.1% annual gain of the London property market, according to the Office of National Statistics (ONS). The trend has continued in 2021, with prices through April rising 0.9% in the regions and declining 1.3% in London.
Trends in the rental market have largely mirrored those in the sales market. Regional rents posted growth of +1.6% in 2020 – out-performing London’s +0.9% and trouncing Prime Central London’s decline of -3.7%. In Q1 2021, rents outside of London grew 3% year-on-year – the highest growth in 4.5 years. Rental growth in the North East, South West and East Midlands hit 10-year highs according to the Hometrack Rental Market Report.
The influence of the pandemic
A key driver of this divergent performance has clearly been the much discussed, pandemic-driven “race for space”. Both indoor space, to accommodate home working and schooling, and outdoor, to accommodate socially distanced leisure activity.
A key question is to what extent this regional out-performance can persist as life returns to “normal”. Mercifully, home schooling appears to be at an end and commuters have been gradually returning to the office.
However, some behaviour changes unleashed during the pandemic may have some staying power. For example, with many employers likely to relax the requirement to be in the office five days a week, many will choose to live in larger, more affordable dwellings and commute periodically to city centres. Indeed, agents report that even areas 1.5 -2 hours from London by train – e.g. the East Midlands – are growing in popularity, with a tangible impact on prices and available supply.
Moreover, it is worth remembering that the seeds of this “Regional Renaissance” were being sown long before pandemic. First, there is the massive affordability gap (chasm?) that has opened up between the capital and the regions. The average London home now sells for 9x average earnings, compared to an average of 5x in other markets, according to Mortgage Lender Nationwide. 20 years ago, London homes sold for around 4.5x earnings compared to around 3x in the regions.
Second, there is the steady shift in investment by both the private and public sector to regional markets. Large companies like Amazon, HSBC, Deutsche Bank, and KPMG have all announced new regional headquarters in the past several years. These are largely in the more affordable North of England. The UK government has also announced plans to re-locate significant amounts of work to cities across the country. These factors will continue to drive demand for housing in regional markets, which suffer from a dearth of quality, modernised housing stock.
Hilltop remains optimistic on the ‘Regional Renaissance’ and will continue to fund attractive newbuild housing projects across the UK. But we also believe that reports heralding the “Death of London” – and the city in general – have been greatly exaggerated.
Anecdotal evidence from across the pond is instructive. Following three years of softening prices, the prime residential market in New York appears on the cusp of a rapid recovery. Bidding wars have become increasingly common, according to Knight Frank. City-wide inventory, though still slightly above the long run average, has declined 23% since late summer, while ongoing robust sales activity will eat further into available stock.
London property market watchers take note.