In this week's blog, we look at the latest round of Nationwide house price data and look more closely at how our asset class uses diversification to benefit from the regional disparities in growth and decline rates. In realisation, the "UK housing market" is a multitude of independent markets subject to different forces that would be far too complex to be palatable as a headline. Hence, the data is often subject to a simple mean average percentage. As a business that manages elements of risk, we understand that the heterogeneity of investment portfolios balances out a degree of that risk. That same strategy applies when investing in a cross-section of UK housing schemes, all situated in their own local markets.
The north-south divide is often academically studied from two viewpoints: economics and colloquial names for bread rolls. However, house price appreciation is the third and perhaps equally important frame of reference. In quarter one of 2024, we saw a 4% rise in property prices in North England versus a 1.7% decline in the South. Digging further into the Nationwide data, the average home price fell 0.2% from February to March, to £261,142, after a seasonal adjustment. Ultimately, as previously referenced, local markets on a micro level can almost be studied on a block-by-block basis, from local authorities to the strength of local businesses and employment; the number of data points to research demand is vast; however, could this be the beginning of a broader trend and why?
The initial answer people will land on is that property prices in the South have become overheated; Hamptons International, in their rental forecast research, indicated that rental yields are now more attractive to property investors in the North East and North West, and the purchase of buy to let properties in London has fallen steadily now for more than five years, the capital may be located in the capital so to speak, but the assets and opportunities may be located elsewhere. Historically, London's property prices have benefited from being a global business hub with limited land and the infrastructure to accommodate growth. The allure of its history has brought in foreign investment like never seen before. Still, it has a finite size and plays dangerously into the infinite argument in economics, the concept that we believe in endless growth with finite resources; we are almost hardwired to believe what is happening today will happen tomorrow, even if that is impossible.
From a development point of view, another common misconception about the North is that it contains vast swathes of open land to build on; in fact, it's the opposite. The Northwest, according to the recent CMA study, has a severe shortage of available land; 53% is protected, and opportunities to increase the supply are less, so that may start to drive up the prices of regional homes when once that metric was dictated solely by the differentiation in earnings up and down the length of the A1.
To return this piece to some semblance of an argument, diversification in our asset class is crucial for mitigating risk and maximising returns. The developers and businesses we support span the length and breadth of the country for a reason. By spreading investments across different locations and markets, our investors can safeguard against fluctuations in any single area or sector. It allows us to support the best regional developers who are most in need of liquidity to build. As a by-product, it provides our investors with risk mitigation against downturns or issues in any region or subsection of the national market.
This strategy reduces exposure to micro-market-specific downturns, economic volatility, or local authority changes. Diversification enhances portfolio resilience, ensuring continued income streams and capital appreciation potential. Optimising risk-adjusted returns and safeguarding against unforeseen challenges are critical elements of capital projection, so providing our clients with exposure to these North and South independent markets is an integral part of the balance our asset class offers.
However, the Barm cake versus bread roll debate will still rumble on.
Invest & Fund has returned over £200 million of capital and interest to lenders with zero losses, showing the rigour that governs our business.
To take maximum advantage of this robust and exciting asset class, please visit www.investandfund.com or contact Shaheel at shaheel@investandfund.com.
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