England’s Second-Tier Cities: Building Homes Will Help

The entire UK economy can benefit from stronger cities north and west of London. Part of that strength draws from improving home building and infrastructure.

 

Strong arguments are made by many interests for strengthening the economies of Britain’s so-called second tier cities, the next-largest metro areas to London. This would not only ensure a certain regional fairness, but also could improve the overall economic health of the UK when industries, jobs, population and infrastructure are more evenly distributed to places that include Liverpool, Bristol, Birmingham, Manchester, Sheffield, West Yorkshire and the North East.

 

Housing factors into this as well. Not simply that greater affluence in each of these areas would drive more home building. But also that more housing and the infrastructure that comes with it can be part of what makes the second-tier cities successful.

 

It should be noted that some discussions and recommendations include social housing as part of the equation. But private investment too – such as that generated and overseen by real asset managers – plays a big role. This discussion primarily considers the role and effects of market-rate homes.

 

One of the strongest interest groups arguing for devolution of authority is the Centre for Cities, which produces research that helps British cities to improve their performance. A central argument they’ve proposed (in a document titled, “Economic growth through devolution,” November 2014) is for the creation of combined authorities that would empower regions to act with greater autonomy on strategic planning, particularly on economic issues.

 

For example, a combined authority centred on Bristol would encompass Bath and Northeast Somerset, Bristol, North Somerset and Gloucestershire. Together, they could set binding statutory city-region plans incorporating housing along with transport and other land use within the region. This would also incorporate the powers to conduct green belt reviews and to rezone land as they collectively see fit.

 

Ideally, that would mean the economic interests of the region could be viewed in terms of where houses go, where transport goes, and where other infrastructure can be developed to lift up the region. At the same time, distant Whitehall bureaucrats would be involved.

 

A revamped housing authority could be an economic boost to each of these regional groups, and perhaps even make housing more affordable. The cost of housing in the UK over the past several decades, a function of the chronic and critical shortage of homes, is unlike that of other western European nations.

 

Another research organisation, the Centre for Economic Performance (CEP) from the London School of Economics, offered additional thinking on this topic in 2013. Henry Overman, who directs the Spatial Economics Research Centre within the CEP, wrote, “Britain’s story is fundamentally different because most of the increase in [housing] prices was a result of building too few houses in areas where people want to live. This, in turn, is down to the fact that our planning system strongly constrains the supply of UK land.” Overman goes on to state that the existing planning regime that affects housing also affects the cost of office space (he cites the 2008 study by Cheshire and Hilber, “Office Space Supply Restrictions in Britain: The Political Economy of Market Revenge,” Economic Journal).

 

These restrictions are what strategic land developers representing private investors encounter on a daily basis. They may be skilled at achieving land use changes from local planning authorities. But the challenge everywhere is what slows the process of homebuilding. Perhaps the Centre for Cities argument to devolve power to community authorities that approach development on a broad – but not national – basis can expedite and expand development.

 

The 2015 election and the election of the Conservative Government has brought about much discussion and promise to liberalise planning policies and to provide resources for home building. It remains to be seen if devolution of authority of any kind will harness regional interests.

 

Investors have a great deal of variables to examine when considering housing development, even in the face of almost unlimited demand and rapidly rising home prices. An independent financial advisor can help those investors to sort through the myriad factors to identify a smart property investment strategy.