Looking Back Over a Decade in UK Property
As we head into a new decade, now is a good time to examine how UK property has evolved over the last ten years. The property market has been flipped on its head since 2008 with the financial crash that sent shockwaves around the world. New regions have emerged, investment habits have completely changed and overseas investment is playing more of a role than ever before.
While property remains one of the most popular investment assets due to its stability and potential, there’s no doubt that the market is a completely different landscape to what it was ten years ago, particularly post-2016 and the Brexit vote. As we look back over the last ten years and the trends that have shaped the sector, we’ll examine how past performance is informing the future and what we can expect from UK property heading into 2020.
Following Financial Crisis
There’s no doubt that the decade started off with a major event. Prior to the financial crash in 2008, UK property had enjoyed a huge upsurge in growth and many investors had settled into a comfortable pattern of buying and selling, with an almost predictable seasonality that meant relative stability.
Buy-to-Let as an asset was booming and house prices were skyrocketing, increasing by around £120,000 in just eight years according to Nationwide, translating to growth of around 95%. Yet, as fast as it rose, the bubble burst.
UK house prices fell by almost 16% during 2008 and the pound dropped to its lowest value in forty-one years. As you’d imagine, London quickly became very popular with international investors that spied the opportunity to build a large portfolio of new-build developments. At the same time, the influx of international investors led to a further shortage of stock, laying the foundations for the residential undersupply that still plagues the market heading into 2020.
Regional Cores Expand
Around 2009, many regional cores such as Birmingham and Manchester had fully-fleshed out and had even started moving forward on transformational redevelopment projects that would mature around 2016. Although these cities couldn’t match the astronomical rise of the capital in the early years after the financial crisis, they came into their own in the months following the referendum and now lead the way in the UK – Birmingham with 16% and Manchester with 15% property growth over the last three years.
London, on the other hand, quickly became an incredibly expensive market – both in terms of property prices and rental prices. London began to see an exodus of renters and buyers that wanted affordability and the London Commuter Belt appeared to be the optimal choice, offering an affordable lifestyle with accessibility to the capital. Commuter towns such as Slough and Bracknell saw an incredible opportunity to drive momentum, underpinned by an over-performing technology sector and an incredible commercial sector.
At the same time, investors began to recognise that regional cores such as Birmingham, which has seen the highest growth in the country since 2016, were delivering better rental yields for a lower initial cost.Though it had seen unprecedented growth after the financial crash, London had finally hit its peak and started a slow decline that has only just corrected itself. Regional cores further North and Commuter towns around London, on the other hand, continue to create desirable places to live, work and play that are still much more affordable.
London was a key market for investment between 2009 and 2016 and property prices in the capital grew by almost 57% according to Zoopla, although a huge proportion of that occurred prior to the Brexit vote, when London started to feel the effects of rapid inflation and prices began to spiral.
(Property Price Growth around an Election – Source: Land Registry House Price Index)
The Brexit Effect
While the financial crash set the tone for the last decade, Brexit has well and truly dominated the final years of the 2010’s. Since the 2016 vote, a broad range of industries and sectors have been clouded by uncertainty, none more so than UK property. Overall, this has meant a generally slower rate of growth, although as we mentioned earlier, certain regional hotspots are performing above and beyond.
In the years between the referendum and the recent General Election (G.E), the market almost certainly overperformed. One of the key statistics to come out of the SevenCapital Brexit Survey is that 85% of current property investors around the world are currently investing in the UK market despite Brexit uncertainty. 56% of the property investors in the UAE and 58% in South Africa invest in property, with a large majority of the UAE (96%) and RSA (82%) investors choosing the UK as a market.
Following the 2019 G. E, the outlook for UK property and the Pound have been much more positive. This is no doubt due to there being a ‘final’ say on the matter, although the result of the election has also likely had an impact on immediate predictions.
Regardless, the UK has maintained stability in the face of uncertainty, an attribute that is heavily favoured by over a third of investors across the globe. The majority of respondents to the survey highlighted the resilience the UK has shown – working through such a large-scale political event and maintaining incredible growth in key areas.
As a whole, ten cities recorded a double-figure price growth post-Brexit vote, led by Birmingham and the Midlands.
Property Investment Trends
A number of key statistics regarding investing and investor habits have emerged over the last ten years. One of the most surprising? The unprecedented rise of the private rented sector (PRS), set to overtake homeowners by 2039.
While predictions have always pointed to the private rented sector covering one in four houses by 2021, the shift from home owning to ‘Generation Rent’ is a huge move that only really started in recent years.
At the same time, huge amounts of residential purchases at the start of the decade means that the years that have followed have been completely overshadowed by an undersupply of quality residential accommodation. Residential undersupply, the housing crisis and issues with affordability are all key challenges that played major roles in G.E manifestos, showing that it’s likely they’ll still be trends in 2020. Improvements to infrastructure, transport, commercial and business links mean regional cores are generating demand – meaning more opportunity and more people looking to take advantage.
London alone should be building 50,000 homes a year to keep up with demand but is only managing 25,000 per year. Similarly, more than 90,000 homes are required across the South East each year while only around 30,000 were actually built during 2018. At this point it’s important to note that undersupply is particularly concentrated in high-performing, productive cities – many of which are located in these over-performing regional cores.
Urban expansion has also skyrocketed over the last 10 years. It’s expected that by 2025, there will be 37 megacities across the globe, increasing from 23 today. By 2050 the urban population will increase by 75% to 6.3 billion, up from 3.6 billion in 2010.
As cities start to swell with demand, people flock to the urban areas for the amenities and lifestyle they can provide. Consider that global construction output is expected to almost double to $15 trillion by 2025, up from $8.7 trillion in 2012, which will quickly expand the world’s inventory of prime real estate.
Rising Foreign Investment
The stability of UK property continues to encourage further foreign investment, particularly from Asia and South Africa. Regeneration across key UK markets has created opportunities for higher rental income and many of these locations are also incredibly affordable, allowing overseas investors to find value.
Uncertainty played a huge part in this rising level of foreign investment and since 2016, international investors have been able to leverage favourable foreign exchange rates against a weaker Pound.
Consider that in 2016, prior to the Brexit vote, the average London property cost around Dh2.7m compared to today’s price of around Dh2.2m – an incredible 22% decrease in prices based on fluctuations in foreign exchange.
At the same time, we’re seeing record-breaking levels of investment into UK technology, which is encouraging demand and having a knock-on effect on house prices in the area. During 2018, venture capital investment into the UK topped £6 billion – the most of any European country.
With £5.5 billion channeled into the sector between January and July this year, the Department of Digital, Culture, Media and Sport (DCMS) has revealed that the UK has not only beaten its previous month but also overtook the US for the amount of investment per capita in just seven months.
Looking Ahead to 2020
As we enter a whole new decade, one of the main stories within the UK is the resurgence of the South-East. After five or so years of decline, London is seeing light at the end of the tunnel while the London Commuter Belt continues to benefit from people leaving the capital’s expensive market.
Regional cities are expected to continue seeing above-average growth over the next three years alongside increased demand and continued undersupply. On the whole, it seems we’re starting to see a ‘firming up’ of prices across the South of the UK, as more regions start to experience the same positive growth that the South East has seen. Moving further North, key cities such as Birmingham will continue to act as investment hotspots as they continue to build on exciting development pipelines.
Also expect a change in the way people think about real estate, particularly about how it impacts urban areas. Whether it’s building vertically or ensuring that residents have access to the amenities that they require, property in city-centres will quickly become incredibly competitive if it isn’t already, attracting residents that want career opportunities, nearby amenities or to be at the heart of a bustling city core.
It’ll be exciting to see where the next decade takes property, particularly as we start seeing advancements in smart home technology and more widespread adoption of property technology that will revolutionise the customer journey for users.