It has been well documented by economists and sociologists that London appears to be losing some of its pulling power, not only in terms of economic growth but also population growth and attracting the best talent in the labour market.
Separately, but as a consequence, the London property market also appears to be going through a slump due to the fact that an affordability ceiling has been reached both by buyers and renters alike.
News organisations such as The Week have reported on the crisis, saying: “average prices had fallen in all three regions of southern England, covering an area extending from Milton Keynes in the north to Lands End in the west and Dover in the east, for the first time since September 2009,” indicating a concerning landmark.
Similarly, The Evening Standard has reported that London homes are now worth less than on the day after the European referendum in 2016, saying: “the average price of a home in the capital dropped 4.4% to £457,471 in the year to May 2019, the steepest rate of decline since August 2009 when the market was still reeling from the devastating impact of the financial crisis.”
There’s the added impact of job losses, especially with looming Brexit complications in the city’s finance sector, with City AM reporting that London was losing out to other UK and European cities for jobs and innovation.
Specific examples that have been given for cities that have benefited more than most were Manchester and Birmingham, where location, cost of living and transport links were superior. Furthermore, the perspective from potential future residents is that the two cities are an exciting prospect with already bustling centres in comparison to the more negative coverage of the capital recently. With house prices dropping, concerns over crime and Brexit nerves affecting London’s financial district.
Changing population demographics
London has a long history of multiculturalism and welcoming people from across the world. However, new research from the Centre for London suggests that this may be another area in which the city’s struggling housing market is causing London to lose out, with “total foreign registrations [falling] 16% in the last year, with a divergence in the number of EU and non-EU registrations. Registrations from the EU [fell] by 15% since 2014. Non-EU registrations have fallen by 45% in the last decade.”
This shows a concerning drop in demand and also a wider trend which is in play, where not only UK nationals and post-graduates are feeling the pressure from high living costs, but also foreign workers and EU migrants who no longer see the city as a good prospect for the future.
Research by Oxford Economics also suggests that “the rate of employment growth in London is set to slow down, averaging a little under 1% a year to 2030, compared to a peak of over 5% in 2014.”
All of these factors are combining to create what we might call a perfect storm. In the past, a lack of housing supply led to spiralling demand, a situation which skewed the market in favour of buy to let investors who could enjoy rapidly growing rental yields and capital appreciation.
However, it seems the situation has now changed and a critical mass of people can no longer afford to live in the homes they want in London. Buyers in Camden, for example, are putting down the highest percentage deposits, up to 30% of £194,373 according to Which?, whilst the average salary in London, according to the Office for National Statistics, is slightly over £37,000. This means that many Londoners would have to save every penny from their gross salary for over five years simply to afford the deposit on a house.
All this has also had the predictable effect of suppressing the London housing market to quite a marked degree. Whilst there has been broad agreement for some time that the property market in the capital was in at least a medium-term bubble, things seem to be accelerating in the current political turmoil of Brexit, and the economic conditions explained earlier.
In isolation there could be mitigating factors which London loyalists could point to and suggest the downturn is temporary and due to freak occurrences. However, these aren’t recent events and most economic forecasts and records show that this is a decline that has been coming for some time.
But if the decline in London is now reaching quite noticeable levels, it begs the question of where this lost economic growth and property investment is moving to.
Manchester & Alliance Investments
Those who work within property, and certainly property investment, won’t consider it ground-breaking to learn that much of the focus that had been set on London in years gone by has recently and seismically shifted towards the North West and Midlands.
Where London offers rental prices and a cost of living that far exceed most young professionals’ budgets, the likes of Manchester and Birmingham are offering exciting new prospects at a fraction of the price.
Landlords and investors are starting to take notice, too, with construction and building currently booming across the regions to meet the demand of not just buyers, but also young workers who require housing.
Yields, rental growth and capital gains are all on the rise much quicker than in the capital, as well as job creation and population growth.
Certainly, from experience we know that our offerings around the Manchester region have been extremely popular throughout 2019, with Birmingham not far behind.
Our Uptown Riverside development in the city centre has recently had even more demand than we could have expected but, in the context of 6% estimated yields and the current London performance, it’s perhaps unsurprising.
We’re seeing similar demand on our wide range of developments across the city and Birmingham and, given the situation in London, we don’t expect demand to abate in the near future.
Alliance Investments, 21/Floor, The Centrium
60 Wyndham Street, Central, Hong Kong