Recent movements on house prices show only limited evidence that COVID-19 has substantially changed where people want to live. While central London has underperformed, central Manchester and Birmingham appear unaffected. That said, we wouldn’t rule out greater variation in house prices emerging in future when it becomes clear more remote working is permanent.
- Recent movements on house prices show only limited evidence that COVID-19 has substantially changed where people want to live. While central London has underperformed, central Manchester and Birmingham appear unaffected. That said, we wouldn’t rule out greater variation in house prices emerging in future when it becomes clear more remote working is permanent.
- To look at how home working may be affecting housing markets we split the local authorities in and around the three largest employment centres in the UK (London, Birmingham and Manchester/Liverpool) into groups based on their population density. The bars on Chart 1 show average annual house price growth in each group. The 95-100th percentiles are inner cities, the 90-95th the urban areas surrounding city centres, the 10-90th percentile typically represents satellite commuter towns, and the 0-10th percentile the most rural counties.
- Given increased home working, and the associated reduction in the value of a short commute, it is reasonable to expect that house prices would have risen most in rural areas and least in urban centres. At the extremes there are some signs of this. The most rural areas have seen some of the strongest price growth. Meanwhile, central London boroughs have underperformed.
- But overall, there is no clear trend of prices in cities underperforming while those in the countryside prosper. Prices in central Manchester, Liverpool and Birmingham have performed well. And price increases were similar in areas between the 10th and 90th percentile for population density, hence why we have consolidated them into a single bar on Chart 1.
- Turning to London in more detail, Chart 2 plots our estimate of the number of jobs based in each London borough that can be done from home against house price growth. House prices in the central business districts of Westminster and the City of London have underperformed. But outside those areas there is no obvious trend.
- There has been more noticeable variation in the performance of different types of housing stock. The average price of houses compared to flats has risen, but that trend began in 2016 as growth in London prices fell behind then national average. So it probably reflects that the housing stock in London is more skewed towards flats than other areas rather than a lockdown-driven clamour for gardens.
- Overall, a closer look at house price growth in 2020 reveals little sign that the pandemic has shifted household’s location preferences, aside from the underperformance in house prices in London’s office districts. But the full impact of remote working on housing demand will take longer to unfold. It seems that the trends that were already in place before COVID-19 hit will run for longer. House prices in London are likely to continue to underperform, and house prices are likely to continue to outperform flat prices.
Chart 1: House Prices (% y/y, Q4 2020)
Chart 2: Location of London Office Jobs & House Prices
Sources: ONS, Capital Economics
Source: ONS, Capital Economics
CE estimate based on ONS BRES & “How many jobs can be done at home?” (Dingel & Neiman, 2020). ↑
Andrew Wishart, Property Economist, +44 (0)7427 682 411, email@example.com