Midlands soars while London stalls – house prices across the UK are set to continue ‘levelling up’ 30 January 2020 The house price gap between London and the rest of the UK has narrowed by almost one fifth since the EU referendum and this ‘levelling up’ trend may have further to run, according to new research published today (Thursday) by the Resolution Foundation. The new quarterly Housing Outlook looks at what drove the UK’s regional house price gap in the decade running up to the referendum, why that gap has been closing since, and whether it will continue to close once the UK leaves the EU at the end of the week. The Foundation’s analysis says that commonly cited explanations of regional house price changes – such as interest rates and, more recently, Brexit uncertainty – can’t help us explain differences across regions because they affect the whole country. Instead it says we need to focus more on very different regional population changes. The analysis notes that the house price gap between London and the rest of the UK peaked just before the referendum, with the average London home selling for more than double the national average (£460,000 in London, compared to £210,000 for the rest of the UK). Between 2006 and 2016, house prices in the capital grew by 6.3 per cent per year on average – more than three times as fast as house price rises in the rest of the UK (1.8 per cent). Since mid-2016 however, London’s house price growth has dropped to 0.6 per cent, while it has risen to 3.5 per cent in the rest of the country – ‘levelling up’ house prices as a result. The analysis shows that house prices have grown fastest in areas where they were lowest to begin with. House prices have grown by at least a fifth in the East Midlands (20 per cent), led by places such as Corby and Leicester, as well as in Wales (22 per cent) and the West Midlands (24 per cent) – ten times as much as London (2 per cent). The Foundation notes that these periods of divergence and ‘levelling up’ have coincided with marked changes in local populations. Rapid house price growth in the capital pre-referendum coincided with the number of family units (adults and any partner or dependent children they live with) rising much quicker than housing supply. Since the referendum, a rapid slowdown in the capital’s population growth has helped cool house price growth. Looking ahead to what might happen to house prices in 2020, the Foundation notes that the ‘levelling up’ of house prices may well have further to run. That’s because in places like the North East and Yorkshire, house prices have risen less than would be expected given the rises in rents in those regions. In London and the East of England however, the fundamentals suggest the opposite – further relative price falls may be on the cards. Daniel Tomlinson, Research and Policy Analyst at the Resolution Foundation, said: “House prices in London and the East of England soared away from the rest of the country in the decade running up to the referendum. But that trend has gone into reverse since the referendum, with the West Midlands leading the way. “The big question is whether this ‘levelling up’ of house prices across the UK is going to continue once we’ve left the EU. It’s tempting to link this change to investor caution in more expensive parts of the country following the referendum. But these recent rises and falls have more to do with much more measurable shifts in population, and the match between supply and demand for housing. “The fact that prices are no longer racing away in the capital will be welcome news for some young people, but home ownership still remains far from affordable for many and very large regional differences in house prices are set to be a feature of the UK economy for a long time to come.