There are few dedicated reports that show the key trends and performance of the Scottish housing market apart from the rest of the UK.
Quite often, many of the statistics we hear about such as the average age of first-time buyers, average house price and forecasted growth are quoted as a UK average. One report which allows us to evaluate the Scottish market on its own merits is the Lloyds TSB Scotland House Price Monitor.
The latest findings from this report in August this year show that the average house price in Scotland has risen for 78 consecutive months with an average annual rise of 13.2 per cent. The areas which have seen the strongest growth over the last year are Aberdeen, at 32 per cent, the North of Scotland, at 21 per cent, and Dundee at 16 per cent. It is apparent that the rest of Scotland is starting to catch up with the two traditional lead cities – Edinburgh and Glasgow which have seen respective growth levels of 15 per cent and 5 per cent over the same period.
According to one leading estate agency in Scotland, the new build market continues to flourish in Edinburgh and Glasgow with the price of new homes in Scotland growing by a sizeable 49 per cent from 2003 to 2006, compared to 38 per cent for the UK overall.
Comparing Scotland’s house price inflation to the rest of the UK, the Council of Mortgage Lenders (CML) reported that from 2003 to 2006 house price inflation for the region was significantly higher than the UK average. In 2006, it reached 11.4 per cent – almost double the UK average of 6.3 per cent and in 2004 it reached its highest level for 31 years at 21.2 per cent – compared to 11.9 per cent in the UK overall.
In the latest report, Donald MacRae, chief economist at Lloyds TSB Scotland, comments that while there is clear evidence that the Scottish house price boom is coming to an end, a downturn in house prices is unlikely. Given that Edinburgh and Glasgow are the two principal drivers of the Scottish housing market, and that they are both still growing – the former due to its prosperous employment and well developed financial sector and the latter in part due to the investment influx in anticipation of winning the bid to host the 2014 Commonwealth Games – then MacRae’s comment that a downturn is unlikely seems justified.
So if a downturn in prices is unlikely, what are the specific key drivers in the Scottish housing market that give us this confidence?
Housing shortage
Firstly, a shortage of housing supply which is synonymous with the rest of the UK. Drivers more specific to Scotland include a high demand for property determined by strong employment. Edinburgh’s position as the biggest financial district after London has contributed to an increase in owner occupied households over recent years. Further factors include better affordability compared to South East England.
A lower average house price than the UK average, matched with better wage inflation provides a lower earnings to house price ratio, giving a narrower affordability gap in many of Scotland top cities. According to the CML, last year the average income in Scotland hit £33,973 – up from £31,097 in 2005 and £19,248 in 1996.
Taking first-time buyers as an example, the average first-time buyer income in Scotland last year was £29,808 compared to £33,997 for the UK average. Over the last couple of years, Scotland has seen strong growth in the number of first-time buyers compared to other areas of the UK. An average income multiplier of 3.11 compared to the UK average 3.21 demonstrates that affordability is better North of the border.
Potential future drivers
So what are potential future drivers of growth?
One major factor predicted to propel prices in Glasgow is the potential Commonwealth Games in the city in 2014.
A look at how previous sporting events have impacted other areas in the UK give positive indicators for the same regeneration effects to impact Scotland’s largest city.
When Manchester hosted the event in 2002, house prices rose by 102 per cent over the five years running up to the event, against 52 per cent for the North West region and 83 per cent for the UK.
Predictions for London ahead of the 2012 Olympics Games mirror this trend. Analysis from Halifax has revealed that house prices in three London postal districts close to the Olympics site have risen by more than 15 per cent since London’s winning bid was announced. There are plans for an extensive house building programme in East London but with housing supply still being such a big issue, upwards pressure on house prices is anticipated to continue.
Further analysis into the impact of the last four Games – Barcelona 1992, Atlanta 1996, Syndey 2000 and Athens 2004 – found that property prices in each city, with the exception of Atlanta, were propelled by infrastructure investment, development of cultural and leisure facilities and general city rejuvenation. Barcelona had the highest growth with prices soaring 131 per cent over the five-year period to the Games, compared to a Spanish average of 83 per cent. Athens increased 63 per cent and Sydney by 50 per cent.
If past performance and London’s expectations for 2012 are anything to go by, there could be more house price growth to come in Glasgow, if its bid is successful.
Capital rankings
Edinburgh is ranked as the fourth largest financial centre in Europe, when measured in terms of equity assets. The financial services industry continues to be the fastest growing sector of the Scottish economy, accounting for 10 per cent of Scottish jobs, with over 108,000 employed directly and 100,000 more in support services. From Q1 2000 to Q1 2007 the financial services industry in Scotland grew by 60 per cent, while the overall Scottish economy grew by 14 per cent and the whole of the UK financial services industry grew by 47 per cent in the same period. This gives a very positive outlook for Edinburgh.
The city also benefits from its capital status and the fact that it plays host to two of the biggest UK festivals each year. The Hogmanay party and the Edinburgh Festival bring with them a host of positive economic conditions that maintain a level of constant demand to live in the city. The Fringe alone, as part of the Edinburgh Festival, generates £75 million for the Scottish economy. Edinburgh Festival research has revealed that 48 per cent of visitors who come to Edinburgh in August come purely for the festivals. An increase in visitors has a significant impact on the cites retail and tourist industry – off license Oddbins reported a 50 per cent increase in whisky sales in Edinburgh during the August period, the Bollinger Bar in the Balmoral Hotel saw a 25 per cent increase in champagne sales during the same month, and £80 million is spent on all types of accommodation in Edinburgh during the festival period.
For all these reasons, and a few more that there isn’t time to expand upon here, Edinburgh and Glasgow are likely to see a continual demand for property, but whether we will continue to see such high levels of growth in this area remains to be seen.
get the daily news delivered to your inbox
find the latest industry jobs
download our news ticker
