regional house prices
One of the fascinating aspects of studying the UK housing market is the tremendous variation in housing values between and within regions of the United Kingdom. The gap between house prices has continued to widen over the last few years.
In this section we consider some of the evidence on what has happened to regional house prices over recent years and try to explain the reasons behind these differences. We also focus on some of the economic consequences on big differences in regional house prices.
The chart below shows the rate of house price inflation for the main regions of the United Kingdom during the year 2000.
Explaining regional differences in house prices
Why is there such a large difference in house prices between the regions of the United Kingdom?
Differences in real rates of economic growth - much of the growth in output during the late 1990s and early years of the current decade has been concentrated in the south east regions of the UK
Unemployment rates and employment levels - unemployment in the South and South Western regions is close to or below full-employment. Employment levels are at record highs and this inevitably fuels total market demand for housing.
Population drift (between and within regions) - net population movement out of regions experiencing below-average economic performance leads to a reduction in demand for housing.
Land prices and development costs - clearly, land prices tend to be higher when the pressure of demand for the available land space is high.
Wages in the construction sector - hourly average wages in construction businesses in London and the South east are substantially higher than in northern regions.
Speculative demand for housing - the speculative demand for housing as a financial asset stimulates extra demand when prices are already strong.
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