In my last blog post I questioned whether house prices still double every 10 years and I gave an example of a property in which this has proven to be true. But is this property an anomaly or does it demonstrate that this trend is still correct?
In order to answer this question, we must dig a little deeper and analyse raw data on UK house prices and consider how values have changed over the years.
So as not to bombard you with too many figures, let’s go back just as far as 1987. In this year, the average house price in the UK was just over £44,000. As such, 10 years later, the average price should have been just over £88,000.
However, this was not the case; the average value of a property in 1997 was actually £62,000. With this in mind, if we were to look at the stats just for this 10-year period, it would be incorrect to state that property values double every 10 years.
But that’s just one 10-year period. If we jump ahead another 10 years to 2007 – and if the value should have been £88,000 in 1997 – then the value should have been just over £176,000 in 2007. This wasn’t the case. The figure was actually much higher and stood at over £183,000. As such, whilst the average price lagged behind in 1997, it had instead jumped forward in 2007.
What about ten years later in 2017? Well, if the price was doubling every 10 years, then it should have been around £352,000. It wasn’t – it was only £211,000 so once again, the average lagged pretty far behind. (Not surprising, as the credit crunch was certainly going to have an effect on property values).
You may argue that it was higher in 2007 because there was the boom. But isn’t this true of every property market – isn’t there always going to be a boom and a bust? The market isn’t a straight line with a gradual increase or gradual decline. In fact, when you look at the data, you can see that property prices are often quite flat for long periods of time, and then they’ll suddenly jump up or fall away.
So, does this prove one way or the other that prices do or don’t double every 10 years?
No, it doesn’t. However, let me just throw another thing into the mix. When we look at these values, we’re looking at average prices across the whole of the UK, and in different regions, the market will be moving by different amounts. Also, because these prices are averages, by definition half the properties will have performed better and half the properties will have performed worse, and this might be down to regional differences.
So, as a final exercise, let’s take a look at how different regions are growing at different rates. Remembering that if property prices are to double every 10 years then there needs to be a growth rate of around 7.2%, let’s see how different areas of the UK are performing.
At the higher end of the scale at the end of 2017 sits Peterborough with a reported a year-on-year growth of 11.2%. (This figure is well ahead of the 7.2% needed for a doubling every 10 years). Also ahead is Milton Keynes with a 9.4% year-on-year growth rate. Sunderland was found to be at 8.8%, Northampton at 7.9% and Glasgow at 7.2%. So, there are certainly many areas in the UK where the growth rate is higher than what’s required for a doubling of values.
At the other end of the scale we have Aberdeen at -3.7% and London at -4.1%. Of course, rates such as these are going to have an overall effect on the average UK growth rate.
Having said this, when it comes to London (which looks pretty bleak right now), it is actually ahead of the 2007 peak by 46%. So looking at it this way, it is well on its way towards doubling – it just hasn’t quite been done in 10 years.
Then you have other regions where it’s fairly middle of the road and hanging around the 4-5% mark. You have to think though, just because it’s middling it doesn’t mean that it’s not going to accelerate in the future, and for those areas where it’s beyond 7.2%, then it doesn’t necessarily mean that this will be sustained.
In conclusion, it seems that the only way to get a clear idea of what’s happening is to look as much data as possible because looking at individual 10-year periods won’t give us the full picture.
You also have to consider that if we were to jump forward to 2027 in just over 10 years’ time, it might be that whilst prices are lagging behind today both across the UK and in some individual regions, they could well catch up just as they did between 1997 and 2007.
Here’s to successful property investing
Peter Jones B.Sc FRICS
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