Demand for city homes has been driving up house prices this year, according to a report by the Halifax bank.
Since the start of 2022, city house prices have grown 9.2%. Meanwhile, surrounding areas only saw 7.9% growth on average.
It shows a distinct flip in demand to the one seen during the pandemic, where homes in rural areas were sought.
Why choose to invest in a city property?
Towns and cities have many benefits over country life, often associated with work and social opportunities.
These benefits include:
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- Jobs: There are greater number of jobs available in urban areas. Starting a new career can be far easier in a new town or city.
- Social: Cities and towns tend to have a greater mix of cultures and ethnicities, and more social opportunities
- Public services: Hospitals and clinics are close by easy access to healthcare in an emergency
- Public transport: Better public transport services allows residents to save money on a car and it is faster to get from place to place
- Infrastructure: There is better quality road routes and towns and cities receive regular funding for improvements
What is the current housing trend?
The average UK city house price is now £238,144, as the post-pandemic trend increased demand for city homes.
The pandemic had increased demand for larger properties outside of central urban areas, as more indoor and outdoor space and better value for money attracted people to these areas.
In the same period, inner-city properties with less space and fewer surrounding green areas had fallen in popularity.
However the end of the pandemic has reversed the trend as offices reopened and social habits returned to normal.
The value of the average home across all locations in the UK grew by 9.9% in the year to September.
What factors are contributing to demand for city homes?
Andrew Asaam, mortgages director, Halifax, said, “The pandemic transformed the UK housing market. Homeowners wanted bigger homes and better access to green spaces, fuelling huge demand for larger properties away from urban centres.
“This accelerated house price growth in the suburbs and more rural areas, while in the cities it was much slower. That trend didn’t disappear completely this year, as house price growth in these areas remained strong.
“But as daily life started to get back to normal for many, the opportunity to live in cities became more attractive again, driving up demand.
“There’s evidence of this in locations across the country, with property price inflation in the majority of cities outstripping increases in their surrounding areas.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman said, “There’s no doubt the pandemic prompted a huge change in many people’s attitude to their homes. The desire to find properties with more space both inside and out resulted in a move often outside cities to the suburbs and beyond.
“However, since restrictions have eased and more have returned to work, so demand to be closer to the centre has increased and with it, house prices. There seems to be much more balance in the market now than there was even a few months ago although of course recent turmoil in the mortgage market and cost of living pressures may add another twist.
“Nothing better reflects the health of the housing market than the number and pace of transactions rather than more volatile prices.”
Chris Druce, senior research analyst at Knight Frank, commented, “Following the reopening of the economy after lockdown, town and city markets have performed strongly as people recognise the value, amenities and entertainment they offer.
“Last year the number of Knight Frank sales in regional towns and cities, as a percentage of all UK sales outside of London, was 40%, up from 38% in 2020.
“Year to date this has accelerated to 44% of all Knight Frank UK sales outside of London.”
How is property supply affect house prices?
The impact of price rises is perhaps most noticeable in London where rents have increased, but this isn’t just due to the changing demand. Supply has a crucial impact too.
In London, average asking rents rise to a record of £2,343 pcm this quarter. This puts the annual rate of asking rent growth in the capital at 16.1%, the highest yearly rate of growth of any region on record.
The pace of asking rent growth is primarily down to the severe shortage of available rental properties, combined with extremely high demand. This has coincided with the government falling short of their home building target, which has also pushed prices up.
Rightmove’s Director of Property Science, said, “It’s a real challenge for renters at the moment, as there are simply not enough homes available to rent to meet the demand from people enquiring.
“Whilst it’s positive news that most areas are seeing more properties coming to market, with London the notable exception, ultimately the gap between supply and demand is becoming wider across the board. We will need a significant addition of homes to come onto the market to even begin to balance the scales.
“Those looking to rent a smaller property in the next few months may find that they face some added competition from would-be-first-time buyers, who have had their purchase plans scuppered for now due to the sudden rise in mortgage interest rates, and are now looking to rent.”
Why is now a good time to invest in property?
For property investors, now is a good time to invest in property.
The extremely high demand and short supply, especially for city homes, presents a great opportunity for buy to let or HMO investors to charge a higher price and create increased revenues.
Due to the current cost of living constraints, there is also less buyer demand on the market, meaning better value for money on a property can be achieved. This has also created a price fall in some areas, meaning a property can be found for less cost before the market returns to an upward trend, as historical data indicates.
The decrease in the price of the pound compared to overseas currencies also makes the UK market more achievable to overseas investors.
The impact of the war in Ukraine and rising fuel prices could also have significant impact on tourism trends. In recent economic downturns there has been a shift towards UK holidays, which poses opportunities for properties used as UK serviced accommodation.
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