As many northern cities struggled to recover from the 2008 global financial crisis, the north-south divide returned to plague the British housing market, as London, which has long operated in its own microclimate, recovered strongly from the downturn, with house price growth in recent years outpacing the national average by some margin, adding to wide regional differences between the capital and the rest of the country.
But house price growth in London, widely considered to be the boiler room of the residential property market, is no longer roaring as buyers find properties increasingly unaffordable, face stricter mortgage affordability checks and higher taxes.
“Typically resilient, London was the quickest to recover following in the 2008 recession. However, the multitude of blows that have befallen its property market over the last couple of months are obviously proving too much to bear,” said Paul Smith (left), CEO of haart.
In contrast to the slowdown in the capital, house price inflation in many large regional cities in the north of England and Scotland is finally in recovery mode and show no signs of slowing yet, not even after the recent Brexit vote.
“Three months on [from the vote to leave the EU] and it is becoming clearer that households in large regional cities outside southern England continue to feel confident in buying homes and taking advantage of record low mortgage rates where affordability remains attractive for those with equity,” said Richard Donnell (right), insight director at Hometrack.
“In London, market conditions are the opposite and new taxes are hitting investor demand while homeowners face stretched affordability levels which are combining to slow the rate of house price growth,” he added.
Historically, UK property prices have demonstrated a distinct spatial pattern over time, rising initially in a cyclical upswing in prime central London, then wider London and the south east, before spreading out nationwide. This is known as the ripple effect and can also be tracked from area to area through the suburbs of London and beyond.
In reality, the housing market in London has had a three-to-four-year head start on the road to recovery, and a glance at the property market suggests that history is repeating itself.
Higher values in the capital are now rippling out to other parts of the country, as purchasers widen their search for more affordable homes, in places like Leeds, where prices have been rising from a low base – representing a potentially good investment opportunity – over the past 12 months or so.
Could Leeds rival London?
Economically vibrant and at the heart of the Northern Powerhouse, Leeds is a magnet for bright young people looking for work, to study, shop and sample a pretty cool nightlife.
Living in the city centre is particularly popular, but finding a home in LS1 is becoming increasingly difficult, as demand outweighs supply; the oversupply of new build flats that were left vacant and unsold after the credit crunch because too many had been built are now occupied, while developers had been reluctant to build many more properties.
Prior to the banking crash of 2008, housebuilders were encouraged by the government to build high density developments close to town and city centres and transport hubs, with many developers focused on constructing high-rise, city-centre schemes, such as the ones that popped up in Leeds, to achieve their volume targets.
However, after the crash, some of those homes sold at just 60% of their original prices, leaving many developers out of pocket, and reluctant to build many more homes on that scale, as reflected by the historically low housebuilding levels witnessed in recent years.
But while housebuilding levels have slowed, Leeds city centre’s population has soared – having more than doubled between 2001 and 2011, from 12,265 to 26,020 – helping to create the supply-demand imbalance that now exists in the heart of the city and increasingly in the suburbs, placing upward pressure on home prices and rents.
National Housing Federation figures reveal that the average price of a property in the city is now more than £178,000, while the average wage is just over £25,000, leaving a huge gulf between salaries and the ability to secure a mortgage.
Thankfully, many residential property developers are now waking up to the potential offered by this flourishing region.
Construction primed for growth
There are now fresh plans in place to build thousands of new homes across a number of key sites in Leeds to help address the city’s growing housing crisis.
The transformation of the former Tetley Brewery is set to include 3,000 new homes by 2028, 204 new homes could also be built in Hunslet, while Carillion has gained planning consent for the £80m regeneration of Tower Works which will include a mix of flats and town houses.
Meanwhile, Leeds City Council is currently consulting on a proposal to build 5,000 new homes in east Leeds, as part of the East Leeds Extension, with a large area of undeveloped land around the edge of Swarcliffe, Whinmoor and Crossgates identified for housing.
Council chiefs have also launched a consultation on plans for the outer north east area of Leeds, which could include up to 3,000 new homes near Headley Hall between Bramham and Tadcaster.
As market conditions in Leeds improve, supported by a strengthening local economy, fresh opportunities are cropping up, which partly explains why the city is increasingly attracting large-scale investment from abroad, most notably China.
Plans for the Northern Powerhouse scheme, of which Leeds is very much a part of, designed to rival London and the South East as the main driver of economic growth in the country, by pooling the strengths of the cities and towns of the north as one cohesive unit, has seen a high level of international investment pour into the city, spanning new homes, commercial ventures, offices and infrastructure.
Chinese money will help fund various schemes, including the development of a new high-speed train route connecting Leeds to Liverpool, Manchester, Newcastle and other major cities, dubbed HS3, which will not just boost economic growth across the region, but also help put the country on a par with other advanced economies when it comes to its transport network.
“The time it takes to travel, on hugely dated infrastructure, between our great regional cities is a national disgrace – this is just not what happens in Germany, Japan or France, with their fantastic rail links,” said Tom Kibasi, director of the Institute for Public Policy Research (IPPR).
Kibasi argues that Britain’s decision to leave the EU shows that regions away from London need more support, including Leeds.
He added: “Given the Brexit result, the north of England must urgently see growing prosperity. A proper east-west crossing would boost northern and UK growth, and must now take priority above all other major transport projects, including Crossrail 2 and HS2 [the planned new Leeds to West Midlands line due to start running in 2033].”
Earlier this month, Hiro Aso, the designer behind King’s Cross Station, was named as part of a consortium awarded the contract to draw up a masterplan for the remodelling of Leeds City Station.
“With HS2 [and HS3] train travel having such an important role to play in achieving the aims of our strategic economic plan, Leeds Station will become a true transport hub for the city, the city region and the North as a whole,” said West Yorkshire Combined Authority transport committee chairman Councillor Keith Wakefield.
Local economic boost
Aside from boosting transport facilities in the region, investment from home and abroad will also help increase Leeds’ international activeness, as well as help create thousands of new homes and jobs.
The plans for the revamped train station, for instance, forms part of a wider vision for the regeneration of Leeds’s South Bank area, which stretches from Holbeck’s so-called ‘urban village’ to Leeds Dock.
Initial proposals for the area include the construction of more than 4,000 homes and the creation of a major new education hub, which should appeal to most of the almost 60,000 students living in the city.
Firms such as Vastint, Burberry and Citu have already committed hundreds of millions of pounds of investment to the South Bank, which will undoubtedly create tens of thousands of new jobs, providing a much welcome boost to the local economy.
Leeds has also seen a sharp increase in demand from retailers, with 20 major retail brands having taken new stores in Leeds so far this year, with a distinct bias towards ‘aspirational’ brands.
New market analysis by Savills shows that various retailers, including Zara Home, Samsung, Oliver Bonas and Snow & Rock, have all taken new units in the city in 2016, taking the total number of new brands which have arrived in Leeds since 2013 to 118.
Tom Whittington, director in Savills commercial research team, said: “The trend for retailers heading to Leeds has accelerated in the past three years, with 15% of all the retail brands present in the city arriving in this time. We expect this only to continue as new schemes open.”
Crucially for those seeking to invest in Leeds’ retail property sector, there are now approximately 1,200 independent and chain shops in the city centre, 780 of which are by brands which have at least one store elsewhere, according to Savills.
Steve Henderson, director in Savills retail team, commented: “Such is the attraction of Leeds for retailers that it is now one of the most important retail destinations in the country. The trend will continue with the opening of Victoria Gate [in November], which is set to be anchored by John Lewis and will bring a further upmarket retailers such as Calvin Klein, Anthropology and Cos to the city.”
Increasing employment opportunities in Leeds, supported not just by the city’s expanding retail offering, but also the growing financial and services sector, which is now worth more than £2bn, is helping to attract fresh talent to the region, further boosting demand for property, especially from renters, with Leeds very much in the throes of a rental boom.
Fresh analysis of property prices and rental incomes across the UK by comparison site TotallyMoney found that landlords in parts of Leeds could now earn higher returns than anywhere else in the country, with a combination of affordable properties and decent rental income netting them an almost 11% yield.
The top-earning postcode, Leeds’ LS6 is home to both a large number of student properties for the nearby university and also attracts young professionals and families. Its popularity drives up average rents, to £1,044pcm, while property still remains relatively affordable to buy, at an average of £116,115, although the postcode includes some more expensive pockets.
“Investors looking for high yields on rental developments might see better returns from properties in the cities of northern England and Scotland,” said Alastair Douglas, of TotallyMoney.
Only last month, FTSE 250 listed residential landlord Grainger confirmed that it is to buy a private sector build-to-rent development on the former Yorkshire Post gateway site in Leeds from YP Real Estate.
Grainger agreed to a forward purchase agreement conditional on YP Real Estate securing planning consent for the development and its completion expected in 2019.
Once the properties are fully let it is anticipated to have an annual return on investment of about 7%.
The site in Leeds city centre will feature 242 purpose-built rental homes, 3,211 sq ft of commercial space, 72 car parking spaces and 3,600 sq ft of amenity space.
Grainger chief executive Helen Gordon, said: “Leeds is a vibrant city which holds all the key characteristics of our PRS investment strategy, including a large professional workforce and significant economic growth potential.”
While home prices in and around LS1 look set to carry on rising, it could very well be that the greatest level of growth will actually occur on the outskirts of the city as the housing market recovery continues to ripple out further afield in 2017, ensuring that other regional parts of the country enjoy the sort of growth that Leeds city centre and its surrounding areas are currently seeing.
*Marc Da Silva is Estate Agent Today and Letting Agent Today Features Editor. You can follow him on Twitter @propertyjourno