We know that London and the South of England are in effect the engine room of the UK economy and therefore attract the most public and private investment. We also know that house prices as multiple of income are also highest in London and the South of England. As a consequence, with talk of northern powerhouses and decentralisation of government services, will enough public and private investment ever move North of London to rebalance the property market?
Moving for employment
It is something of a self-fulfilling prophecy when you bear in mind that London and the South of England attracts the most investment and as a consequence the most employment opportunities. This in turn increases demand for property, above and beyond the rest of the UK, thereby pushing prices to levels which would be unsustainable outside of London and the South of England. The problem is; if the UK government decided to rebalance investment in public services across the UK this would ultimately mean a reduction in these two thriving areas.
While house prices would inevitably move in line with affordability and employment opportunities in the region, this could lead to a massive downturn. There are millions of people in London and the South of England who have acquired houses on much higher income ratios to the rest of the UK. A reduction in investment, both public and private money, in this region could potentially leave many people in negative equity. This in itself would have a knock-on effect to the UK economy, the rest of the UK property market and so the downturn begins.
Deflating the market
It may be possible to slowly deflate the housing market in London and the South of England, while increasing investment in the Midlands and the North of England. This would be an extremely delicate balancing act that in reality is one which few politicians would be ready to try. Traditionally London and the South of England has been a Conservative stronghold while the Midlands and the North tends to lean more towards Labour. Even a shift in money away from London and the South of England, should the Labour Party ever get back in power, would disenfranchise many floating voters from the Labour movement.
Since Brexit emerged unexpectedly we have seen an increase in overseas investment into the UK property market, some of which occurred due to weakness in the currency. We’ve also seen some investors cashing in their “London premium” to acquire larger properties outside of the capital for less money. It is fair to say that some investors are now appreciating the “value for money” property market in the Midlands and the North of England. However, we have seen this short-term situation before, although ultimately investors will return to their traditional hunting grounds.
There continues to be talk of increased investment in the North and Midlands but the fact is that reduced investment in London and the South of England could potentially decimate the housing market, leaving many drowning in negative equity. In reality, any increase in investment in the North and Midlands would need to be replicated in London and the South of England. If the engine of the UK economy began to slow, job prospects weakened and unemployment increased, the knock-on effect to the rest of the UK (and in particular property prices) could be catastrophic.