The areas of the UK where there is the fastest house price growth has been changing in recent years. While London properties once boasted a steadily increasing average house price, it is now areas such as the North West and Birmingham that are seeing much more price growth.
The UK House Price Index published in November 2021 revealed that the annual average house price growth in London was 5.1%. In the North West, average house prices grew by 10.8% over the same year and the West Midlands saw an average property growth of 9.8%.
Reasons influencing the house price growth
One of the factors driving higher house price growth in areas such as Manchester and Birmingham is the increasing population and consequential higher demand for housing. The population of Manchester has increased by approximately 60,000 (from 2,710,00 to 2,770,000) between 2018 and 2022.
The population of the West Midlands has seen similar levels of growth, rising from 2,589,000 in 2018 to 2,646,000 in 2022, an increase of 57,000 over the four years. Housing is not being developed at the same rate, particularly due to the delays caused by the pandemic.
There is a large student population in both of these cities, due to the proximity of several top universities, which is increasing every year. This growth is not only affecting the demand for houses while the students are at university, many graduates are choosing to settle in the city or area that they have studied in.
Cities such as Manchester and Birmingham can offer students most of the amenities that are available in places such as London. Regeneration projects in the cities have improved facilities such as music venues, bars and restaurants, sports stadia and many other amenities that graduates are interested in using. The vibrant nightlife in both cities ensures that it is an attractive location for a social life during university, as well as after finishing university.
Manchester was recently ranked the second-best city for nightlife in the UK, behind another northern city, Newcastle. Manchester is home to several popular music venues hosting live events and there are many different districts around the city centre for socialising.
‘Race for space’
Another factor that is influencing housing demand and pushing up the prices in Manchester and Birmingham is the ‘race for space’ that has emerged as a consequence of the COVID-19 pandemic. The concept termed the ‘race for space’ refers to the increase in the number of people who are looking for new properties that offer them more space, both indoors and outdoors.
The experience of being at home for long periods during lockdowns caused many people to reflect on the amount of space they have and how they would benefit from having a larger home. Working from home and the need for a home office is also a new priority that requires more space.
In places such as London, people are paying much more in rent for space compared to the same amount of space in most places in the North of England. Therefore, many people and businesses are now moving away from London and other southern locations in order to get better value for money elsewhere.
According to Statista, inner London had an average monthly rental cost per square metre of £26.07 in 2020, while Manchester’s average rental cost was £11.12 and Birmingham’s £9.89. London was the second most expensive city in Europe, with only Paris commanding a higher monthly rental amount.
Despite areas like the North West seeing such a high increase in house prices, properties still cost significantly less than buying in London, on average. The average house price in the capital at the end of 2021 was just over £675,000, while the average house price in the North West was £233,000.
Due to this, it is easy to see why so many property investors are moving quickly to invest in these thriving areas of the North.
Due to all of the reasons discussed above that are driving an imbalance in housing supply and demand, rental growth in the North and Midlands is expected to increase at a rapid rate over the coming years. The huge difference between the average rental cost per sqm in London and Manchester is predicted to reduce, as the demand for property in the northern city grows.
Demand for properties in Manchester increased by over 50% between Q1 and Q3 of 2021, while Birmingham saw an increase in demand of 60% over that same period, according to Zoopla.
Rents are forecast to rise by 4.5% by the end of 2022 across the UK but Manchester is expected to significantly outperform the average, with an expected rental growth of 16.5% over the next five years.
If you would like to find out more information about property investment opportunities in Manchester and Birmingham, take a look at our current investments.