It is hard to recall a more uncertain time in the UK political and economic sphere than the period we currently face. As the days have ticked towards and then beyond the 28th March Brexit deadline, each day has seemingly brought with it divergence rather than consensus, and deliberation rather than decisiveness.
Against this backdrop, it would be easy to assume that the UK housing market finds itself in the doldrums, weighted down by a bearish outlook, a lack of transactions and falling prices.
And indeed, if one were to look at UK housing figures as a whole, it would be similarly straightforward to draw this conclusion. After all, the UK Cities House Price Index demonstrates that house price growth across the country’s twenty largest cities stood at just 2.7% year-on-year to the end of 2018 – less than half of the 6% annual growth achieved five years ago. It is broad-sweeping figures such as these that have led to the coining of the popular phrase ‘post-brexit vote phase’ amongst media to convey the idea of an entire country and housing market living in the shadows of the Brexit vote.
To portray this view, however, is to ignore that the UK housing market is a patchwork, rather than a canvas, with locational dynamics and important microeconomics at play that continue to impact on an area’s performance.
In reality then, what UK-wide figures really underline is the influence of London in skewing current national averages. In the twelve months prior to the 2016 Brexit vote, the capital had already begun to plateau, its housing market under pressure from price saturation and rising taxes, forcing business, investors and owner-occupiers out of the city in search of less expensive alternatives.
In the aftermath of the vote, these factors have continued to play out against a growing backdrop of political and economic unease, leading to a fall in prices – of 0.2% in the latest year-on-year Hour Price Indices.
Key to note, therefore, is that Brexit has not shifted the landscape and flipped London’s housing market on its head. Rather, it has exacerbated the existing pattern caused by local push-factors that have led to an outflux of capital.
In turn, far from the push-factors at play in London, it is important to also consider the pull factors creating ongoing opportunities in other areas of the UK, and that beyond the underwhelming overall figures, there are areas of the country enjoying an influx of investment and growth in spite of the current Brexit environment.
Take Birmingham for example, which continued to see a 5.9% increase in house prices year-on-year in 2018. This city has grown largely on the back of a step-change in the local council’s attitude to housing development, creating a political environment that encourages investment; and infrastructure changes, both current and planned, that have attracted big business and their supporting tertiary services to relocate to the city.
Another case-in-point is Manchester, which grew at 5.8% year-on-year in 2018, driven by an entrepreneurial local council effectively marketing the city as a place of fashion, culture, music and sport; and a national ‘northern powerhouse’ movement incentivising business to move there.
To go beyond generalised patterns and to explore the nuanced dynamics at work in specific locations, then, is really to uncover the fundamentals of real estate as an asset class. Yes, it is cyclical in its growth and recession; and yes, the general political and economic outlook can both exacerbate and alleviate the status quo. Yet ultimately, at its core, real estate is based on a relationship between people, place and a need to be housed that is largely resilient to extenuating circumstances. It is in turn the movement of people and thus the shifting microeconomics of supply and demand which mean that, beyond the surface, there remains the constant emergence of investment opportunity.
As a property consultancy, it is TMP’s role to identify these areas of opportunity and assist a client every step of the way in accessing them, as it relates to their specific investment objectives.
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