Supply and demand is the key economic fundamental that drives up property prices in the UK. The less properties that are built year on year, the higher the price on existing properties- and vice versa. While the UK as a whole is suffering from this problem, there are specific towns and cities in which this is felt harder, so investors are putting their money into these areas to capitalise on capital growth and rising rents.
Here, I will detail the disparity between property supply and demand in the UK and what this means to you as the investor.
In short, the rising population is the driving force behind the increases in UK property prices. This is particularly true in major UK cities with constant improvements to transport links, additional schools and shops, and major employment increasing. These factors make more and more people want to live in these cities and the UK in general.
It’s not just the growing population but also the increase in investment businesses contributing to a growing demand. Britain has the 5th largest economy in the world and latest figures have shown that overseas investment in the UK is at an all-time high despite Brexit.
Foreign and domestic investors are attracted to major regeneration projects such as HS2, Crossrail and the Northern Powerhouse. They know that demand for property at the heart of these schemes is set to skyrocket in the coming years so they’re taking advantage now by investing in high end off-plan developments in these areas. Cities like Manchester, Liverpool and Birmingham are witnessing huge private investment. Money is being poured into developing shops, offices, commercial premises, and, of course, new build homes. Businesses are rushing to open new operations in cities that will become better connected and that benefit from highly educated workforces.
Due to the growing appeal of the UK as a country to live in, the population is set to increase even further. The most recent population forecast predicts that 4 million more people will live in the UK within the next decade. This will take the current population of 65.8 million to 70 million by 2028. Where are an extra 4 million people going to live? One things for sure- prices on existing properties are set to increase even further by this ever-growing demand.
Homebuilders are simply not able to build enough properties to meet this overwhelming demand. Recent figures have shown that 165,000 new builds are in the pipeline across the UK, yet in the 2017 winter budget there were supposed plans to build 300,000 homes a year. We’re chronically short, and despite constant government noise about building more homes, it’s worth noting that last year they quietly abandoned their 2015 pledge to build a million new homes by the end of 2020. The struggle to adequately build homes is only going to put a premium on UK house prices even further.
Where is demand greatest?
According to research by Minerva Lending PLC, Manchester has the biggest gap between supply and demand of property. It has 8 new residents to every home built over a 5 year period between 2011 and 2016. London also has a huge demand with 5 new residents for every home built over the same period. Cities like Birmingham, Liverpool and Leeds have also been noted for their growing demand and limited supply.
A collapse? Or just a cooling off period?
The increase in average UK house prices has dumbfounded many supposed experts who predicted that a collapse in the markets was imminent post-Brexit. All we have experienced is a minor setback in terms of prices mainly in London where things have admittedly stagnated. Elsewhere in the UK however has seen steady growth largely unhindered by Brexit mainly down to the supply and demand gap issue discussed here. Hundreds of thousands of people needing somewhere to live have not just disappeared because we have voted to leave the European Union. The demand still exists, and as long as it does in accordance with a shortage in supply, house prices will increase across the UK.
So where are the best locations?
Based on supply and demand as well as major regeneration projects happening, we think that cities like Manchester, Liverpool, Birmingham, Leeds and Glasgow are some of the best investment locations right now in the UK. All of these cities are unbalanced in terms of supply and demand and are set to benefit from big infrastructure schemes and enhancements to transport links. London meanwhile has flat lined in the last year or so, and whilst we’re certainly not predicting a collapse in the capital, the smart money is being invested elsewhere currently.
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