Capital Appreciation

According to the Office for National Statistics (ONS), the average full-time worker in England and Wales in 2018 could expect to pay an estimated 7.8x their annual income for a home. In Liverpool, that figure is 4.3x, and in Manchester, 5.7x.

The same average full-time worker in 2018 could typically expect to spend 9.6x their median gross annual earnings on purchasing a newly built property or 7.6x their annual earnings on an existing property. This means that in England and Wales today, it is generally less affordable to purchase a newly built property than an existing dwelling.

Housing affordability

Housing affordability in England and Wales stayed at similar levels in 2018, following five years of decreasing affordability. In southern cities, much of the slow-down is being driven by stretched affordability following years of property price rises outstripping earnings growth.

To view affordability in your local area, visit the page below, scroll down to ‘Housing affordability ratio by local authority district, England and Wales, 1997 to 2018’, and then enter your location.

Despite what the media suggests, the UK property market is in a permanent state of frigidity and the next property recession is around the corner as soon as the winds of sentiment change. However, every recession is different and the practical outcomes are impossible to predict. That said, prices in many parts of the UK, excluding the London market, are still below their 2017 peak. That effectively means we have a two-speed housing market between London and the rest of the country. When you take into account inflation, many parts of the UK have seen little growth. So what exactly is this relationship between house prices and earnings? In simple terms, it is the ratio between average house prices and
average worker earnings. What is interesting about this ratio is that it is both mean-reverting (i.e. it tends to return to its historic average every few years) and range-bound (i.e. it exists in a relatively tight range rather than flitting between one and one million).

I am a mean-reversionist, so my basic assumption is that most things do return to long-term averages.

Why UK property prices could stay flat for 20 years

Speculative products, such as new-build apartment blocks, are the slowest appreciating assets as they are primarily over-supplied in most of the major UK cities. The announcement of Liverpool’s nomination for the Capital of Culture 2008 title was a key driver for me to invest in the area, long before they eventually went on to win. Likewise, Hulme in Manchester was seen as a regeneration area, and the trigger for me was the decision to build a large ASDA right in the centre.

The development of Cain’s Brewery in Liverpool focused my attention on acquiring sites in and around this ‘’mini-city’, conveniently located within walking distance of the city centre. I learned about this regeneration area from the local planning portal long before the media began to write about it.