Regional ‘hotspots’ offer growth hopes

JLL said very little house price growth can be expected this year as prime London remains flat and the country absorbs the impact of Brexit uncertainty.

Price growth will be subdued, with 0.5% increase forecast for the UK, rising to 1% in London.

However, the big regional cities may outperform. Weak levels of supply in Manchester city centre pushed prices and rents up by around 15% and 11% respectively in 2016. This is expected to continue in 2017.

Meanwhile, in Edinburgh suburban family homes are in demand alongside build to rent developments in the city centre and towards Leith.

Birmingham, which is the beneficiary of the first big Housing Growth Fund investment into 2,000 new homes, is also attracting renewed attention, having been overlooked by large-scale residential investors since the downturn.

JLL’s lead director for residential, Andrew Frost, said the number of new build starts in London will fall dramatically.

“Legislative changes, such as stamp duty and the uncertainty around Brexit, have led to weaker investment demand from overseas as well as domestic buyers. Alongside an overstretched owner-occupier market, this will keep a lid on price pressure,” he said.

“At the same time, build costs will see significant inflation as the devalued pound sterling hits imports while the Mayor has continued to push for bigger affordable housing contributions. As a result, in contrast with the nearly 24,000 homes built in London during 2015, 2017 levels are expected to fall back closer to 16,000.”

Frost said a strong, stable political backdrop for housing policy aligned with the creation of the new London Plan and the Government White Paper will be important for the industry.

JLL also predicted that residential development in Scotland is set for five years of growth, with demand for homes continuing to outpace supply.

However, continued political and economic uncertainty surrounding Brexit and a possible second referendum will ensure a cautious approach from housebuilders, placing continued pressure on price and rental growth, especially in key city centres.

It added that the Scottish Land and Buildings Transaction Tax is a ‘housing market thorn’, impacting transaction volumes higher up the value curve.

Neil Chegwidden, JLL residential research, said: “Housebuilders are more pro-development now than they have been for some time. Encouragingly we are now seeing the re-emergence of smaller and mid-sized housebuilders, providing stiff competition to the larger and more established Scottish housebuilders who have kept their toes in the market despite tougher market conditions in recent years.

“This is forcing up land values in key locations and creating a more diverse base of developers but the battle and scarcity for prime city centre sites is also generating opportunities and desire to develop in peripheral locations.”

“All of this is positive for the Scottish residential market moving forward. Let us hope that the political and economic landscape does not undermine the drive towards a more normal and sustainable housing market.”