JLL research has identified the core trends that are likely to shape the UK's housing markets after COVID-19
From Brexit to COVID-19, the UK housing markets and wider economy have been facing unprecedented levels of uncertainty, but there's every reason for investors to feel positive about the near future.
Despite the challenges, performance in some markets has been better than expected across the difficult year, and the next few years will present opportunities to buyers and sellers who understand how the real estate landscape has changed and who are prepared to adapt.
Based on projections that the number of new infections will fall steadily over the next year and that an effective vaccine will be available the following year, Jones Lang LaSalle (JLL) expects the UK economy to recover to pre-COVID levels of growth by mid-2022.
Unemployment will likely take longer to return to former levels, with many industries being hit hard by the pandemic, but the rate is expected to stabilize around 3.5% by the end of 2025. With interest rates and income growth at historic lows, housing affordability during this period should offer many excellent prospects for domestic and overseas property investment.
JLL research predicts a bumpy road of generally positive growth for UK house prices over the next five years. The current strong recovery of residential property prices is expected to continue through to March 2021, when the changes in Stamp Duty come into effect for overseas property transactions and prices decline. A resurgence of growth is expected from 2022, dependent on a COVID-19 vaccine being in wide circulation.
Rental growth is also expected to decline in 2021 as the British Government's job retention furlough scheme ends, which could see many lower to middle income earners facing redundancy. Private housing starts and transactions will be well below numbers predicted before the pandemic, but are expected to recover from 2022 as confidence returns to the sector.
London and South East England
The Prime Central London property markets are comparative safe havens for investment in times of financial crisis, and price and rent growth are expected to resurge as early as 2021. Greater London property as a whole is also expected to prove its resilience with flat house prices in 2021 before growth resumes in 2022. Buyers will increasingly favour outlying districts and regions, especially with the arrival of Crossrail services connecting the South East.
East and South West England, the Midlands and Wales
JLL forecasts Birmingham's sales and rental markets for the strongest growth in the UK over the next five years, supported by the HS2 rail service and 2022 Commonwealth Games. Bristol has the potential to be a favoured alternative to London for commuters and home owners if the undersupply of private sale apartments is addressed.
North East England is set to be the worst affected housing market in the UK as the region faces 11% unemployment by 2021. The major northern cities of Manchester, Liverpool and Leeds are expected to fare better with generally flat prices in 2021 and strong growth from 2022, underpinned by the ongoing housing shortfall.
While Scotland house prices are set to fall in line with the UK average, its two major cities of Edinburgh and Glasgow will see stronger performance. Demand for Edinburgh city centre apartments will continue to outpace supply, while the £35 million regeneration of the River Clyde will create more opportunities in Glasgow.
Changing buyer demands
Beyond economic factors, changing trends in what home buyers and tenants are looking for in properties will drive some of these changes in the markets. The coronavirus pandemic has accelerated the pace of some ongoing trends while creating or reversing others.
One of the biggest changes brought about by the pandemic is the rise of remote working. As people spend more time working and shopping from home, sellers and developers need to satisfy the growing demand for a flexible work-leisure space, access to nature and reliable broadband speeds in properties.
While the growth of cities will continue, a notable shift is underway of affluent young families favoring greener outskirts and suburbs over city centers to satisfy their changing living needs. This could mean that access to public transport and amenities are no longer the priorities they were for a significant portion of home buyers, opening up more opportunities in previously overlooked locations.