The Midlands: A hotspot for development?

The increase is significant, with average prices driving up from £264,697 to £306,784. This trend is supported by a more localised report from Birmingham Property News which stated that homeowners in the Jewellery Quarter, Birmingham’s most desirable city centre location (and where Avamore funded its first project in the Midlands back in early 2019) have pocketed around £110k over the past 10 years thanks to the hike in prices.

These figures are staggering, particularly when the Midlands are outperforming the UK’s average house price rise as a whole, (expected to increase by 13.1% over the next half decade). Naturally, this uplift can be attributed to a shift in working attitudes; more people are commuting fewer days a week which is creating greater optionality around where people can set up home.

City centre living is likely to always remain popular. Regardless of whether we are expected to be in the office or not young people will continue to chase a metropolitan lifestyle. This shift in attitude, combined with the promise of new high speed railways connecting Birmingham to other major cities is tempting young professionals to get on the property ladder in areas which were once considered to be inaccessible. Covid has accelerated and enabled that transition even more so.

Anecdotally, I have also gathered that areas like Staffordshire, Shropshire and Warwickshire are seeing increased demand; that change is generated by more potential buyers for larger homes which include the all-important home office, in more semi-rural areas. This is also enabling greater buying power for those on a London salary, willing to relocate in favour of getting more for their money; realistically it’ll only be families with very young children that will consider making the transition.

But what does this all mean for the development market? We would assume that those local to the area would be capitalising on these changes; from a funding perspective, high spec, single unit homes have historically been difficult to justify but over the next few years, more comparables could pop up enabling greater variety for the types of development projects long term (along with the continued production of more affordable housing). There will however be some difficulty around how quickly this demand can be serviced.

Many navigated the ‘covid hangover’ of increased cost overruns and unexpected delays which stalled projects but now, we are faced with new problems. Inflation is high, pushing up the cost of materials and goods which makes budgeting for projects difficult; this, combined with the government trying to control price rises with an increase in interest rates is raising the cost of capital for borrowers. Those that have greater contingencies in place might just be able to ride it out but the direction of travel we are heading in might mean that some SME developers are priced out of the running and can’t make the most of the opportunities areas like the Midlands present.

From a lending perspective, we are watching closely and wating to see what the impact is not just in the Midlands but across the UK property market. We can’t predict the future but what we do know is that our space is resilient and there’ll always be a way to keep developers developing.