What Will HS2 Mean for the UK Property Market?
High Speed Rail 2, or HS2, as it is commonly referred to is the planned high-speed railway, which will link London to Birmingham in phase one and then connect Birmingham with Leeds and Manchester in phase two. There has been much controversy surrounding the project, such as whether or not it will meet environmental legislation, and whether or not the £43 billion project will have sufficient benefit to the economy. The obvious benefit will be reduced travel time between the north and south as London to Manchester is reduced by sixty minutes and London to Leeds is reduced by 49 minutes. However, there will also be many overspill effects from the project, one of which will be the effect that HS2 has on the property markets in northern cities.
With London being made far more accessible to distant cities, will there be an influx of people looking to move into the area, will house prices soar, or will everything stay the same? The following article will explore these questions and look at the effect of HS2 on property markets and how property investors should be addressing these issues.
How will property prices be affected?
The increased connectivity between the capital and major northern cities will undoubtedly have an effect on property prices as businesses are able to expand more easily and commuting from further afield becomes more viable. Both the buying and the rental markets in Manchester and Leeds should see increased prices – great news for investors, especially given that the project isn’t due for completion until 2030, meaning there is plenty of time to take advantage of the current lower prices.
Property experts and estate agents have largely agreed that we can expect to see a rise in property values, as improved transport links will make the cities of Manchester and Leeds much more attractive and competition for purchasing properties will increase as more people look to move to north. Property investors will be able to capitalize on this, and should see higher return on investment than they are perhaps used to.
Could we see a house price bubble?
However, as values increase and properties are bought and sold increasingly for investment purposes, prices may spiral and we could see the emergence of another house price bubble. House pricing bubbles usually come about as a result of an increase in demand, which is in the face of limited supply that cannot be solved overnight. As large number of speculating investors enter the market looking for a quick win, house prices become artificially inflated above their true value, which can have devastating effects on the housing market.
Whilst any sort of price bubble is generally seen as a bad thing, for quick thinking property investors, there can be some advantages to a house price bubble. Investors already holding properties will be able to take advantage of the upswing and sell their assets at inflated prices to realise a healthy profit. However, this requires the ability to anticipate the price bubble and react quickly so that properties are sold before the bubble bursts.
Rental income also increases during a price bubble and investors involved in long term rental projects should see increased yields as a result of the bubble. Furthermore, rental values should not fall too far as a result of the bubble bursting as credit will tighten and people will be unable to secure mortgages and will instead have to rent.
However, as we have seen in the past, house price bubbles can be disastrous for investors as the property market often crashes, taking a long time to recover. However, tighter lending guidelines for banks and financial institutions should mean that property market crashes are less likely to occur as speculating is discouraged and easy credit is not available to the wrong investors.
Is property investment crowdfunding the answer?
If you are a regular reader, you’ve probably heard of crowdfunding - if you are an investor then you definitely have, but could it be the answer to avoiding huge losses following a property crash? Crowdfunding allows for much greater portfolio diversification and a reduction in the normal levels of risk associated with investment. Somebody at the start of their property investment journey does not normally have the luxury of diversification, but crowdfunding a property investment allows this. Crowdfunding allows novice investors to spread their funds between a numbers of different properties in different locations to protect themselves against the possibility of a crash.
HS2 is likely to cause localized property bubbles in areas of London, Birmingham, Manchester and Leeds, and the property market in each city will react differently. This is where a property crowdfunding platform allows investors to geographically diversify their portfolio and reduce the risk that would come with investing in a single property. Crowdfunding lets small investors act like investment powerhouses and use portfolio diversification like the investment banks.