The North East is the only region in which house prices are yet to surpass their 2008 peak.
Flats in the North East were the most severely affected property type by the economic downturn, losing over 20% of their value between 2007 and 2013.
House prices in the North East are amongst the most affordable in the country; the price to earnings ratio in the North East is 5.2, compared with 7.9 in England.
This article was written by Nicholas Evans, Jeanne Piffaut and Joseph Glews, who are economics students at the University of the West of England.
House prices in the North East are some of the most affordable in the country. While the price of a property in England has grown by 25.3% between 2007 and 2017, the North East has fallen by 7.1% over the same period. It is the only English region yet to surpass its pre-economic downturn peak. In comparison, prices in other economically and geographically similar regions such as the North West and Yorkshire and The Humber have grown by 4.2% and 5.0% respectively over the same period (Figure 1). Differences in house price are often a reflection of the underlying economic conditions in each region. This article explores North East house prices in more detail and considers potential reasons for its slower house price growth over the last 10 years.
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Falling house prices have a negative effect on wealth. Those who view their property as an investment vehicle may feel disadvantaged by the current state of the regional housing market. This can cause homeowners to consume less and save more as a compensation for the loss in asset value. To better understand the origin of the weakness of North East housing prices, Figure 2 presents sales volume transactions for the period January 2007 to December 2017.
Sales volumes suffered a large fall in 2008, yet have slowly been increasing since 2013. Between 2009 and 2013, monthly sales volumes averaged 2,200, compared with 3,200 from 2014 to 2017. The increased sales activity between 2014 and 2017 is in line with an increase in North East house prices during the same period. However, while sales volumes have increased in recent years, they remain far below pre-economic downturn levels. This signifies a sluggish market and partly explains why house prices in the North East have not yet recovered.
The increase in sales volumes between 2013 and 2017 is in line with an increase in net housing supply (Figure 3) during the same period. This suggests that the increase in sales volumes can in part be explained by an increase in supply, which could have had the effect of keeping prices depressed. The areas which have seen the largest increase in net housing supply are Newcastle upon Tyne, Northumberland, and County Durham.
Focussing on potential demand, Table 1 shows that the percentage change in the North East population from mid-2011 to mid-2015 is under half the UK average (1.2% compared with 2.9%). This indicates that the North East is experiencing a much lower accumulated percentile in their 0 to 64 years population. Although the relationship between housing demand and population growth is not entirely clear, slow growth in house prices could in part be due to the weaker population growth in the region, reducing demand.
Table 1: Percentage change in population, mid-2011 to mid-2015, by broad age group
|Source: Office for National Statistics population estimates (incorporating National Records of Scotland and Northern Ireland Statistics and Research Agency estimates)|
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If we look ahead, Figure 4 predicts that from mid-2014 to mid-2024, the percentage population change in the North East region will be negative for 16-to-64-year-olds, and much lower than England. This could result in further deflationary pressures on house prices in the North East.
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House prices are still below their economic downturn peak for all property types (Figure 5). While the prices of flats and maisonette properties experienced strong growth prior to the economic downturn, they fell the furthest (in percentage) following the downturn and took the longest to recover.
This could be explained by the strong influence of the buy-to-let market on flat prices. Before 2008, investor confidence was high, as were returns to investment. This led to high demand for flats, which are more commonly bought as investments than other property types. Following the economic downturn confidence in the housing market and the broader economy was low, and so property investment fell. This corresponds to a lower demand for flats, and goes some way to explaining the lower fall, and slower recovery, of flat prices.Back to table of contents
While house prices in the North East have yet to surpass their pre-economic downturn peak, there is one local authority bucking the trend. Between 2007 and 2017, North Tyneside was the only local authority in the North East showing growth in house prices, increasing by 3.9%. At the other end of the scale, Hartlepool and County Durham have experienced the biggest falls in house prices between 2007 and 2017, both falling by more than 14%.
Table 2: House price growth by North East Local Authority, 2007 to 2017
|Newcastle upon Tyne||160,874||156,081||-3.0|
|Redcar and Cleveland||129,982||119,184||-8.3|
|Source: UK House Price Index|
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Current data presented in this article shows that the North East still lags behind the rest of England in house price growth, highlighting the ongoing impact of the “North-South divide”. Even in comparison to other economically and geographically similar regions such as the North West and Yorkshire and The Humber, house price growth in the North East remains slower.
The state of the North East housing market will depend on many factors, some of which we have touched on in this article, such as trends in population, housing supply, and government policy. Further research into these areas and their effect on house prices could be instrumental in determining the future of the regional housing market and the situation faced by homeowners in the North East.Back to table of contents