The Link Between House Price Growth and Employment Levels

By Simon Morris On Thursday, May 21 st, 2015 · no Comments · In ,

A new study by Lloyd’s Bank has shown that there is a strong link between house price growth and levels of employment in a local authority. Property specialist Simon Morris believes that this is an important finding for investors looking to invest in residential property.

Homeowners need steady capital for a mortgage

Common sense suggests that there’s a link between house price growth and employment levels. This is because potential home owners need access to a steady stream of capital to meet mortgage repayments.

Interestingly, if we look at raw data we can see that as the economic recovery has reshaped the United Kingdom, both employment levels and house price growth have soared. The BBC’s unemployment tracker has shown that unemployment in the UK has fallen from a height of 2.66 million in 2011, the height of the recession, to 1.86 million at the end of January 2015. Meanwhile figures from the Office for National Statistics (ONS) shows that the average UK house price rose by 7.2% in the year to February 2015.

Where have average house prices risen the most?

This would indicate that there’s a correlation between employment and house price growth. This is a theory that has been strengthened by a Lloyd’s Bank report which shows that the 20 local authorities in the UK with the lowest unemployment have seen their house prices rise on average 25% from 2009 to 2015.

In contrast, the 20 local authorities in the UK with the most unemployment have only seen their house prices rise 3%, on average, since 2009. As a baseline, house prices have risen 17%, on average, across Great Britain since 2009. However when you take London out of the equation, this figure falls to 11%.

Local economic health and house price behaviour

Lloyds Bank mortgages director Andy Hulme spoke out on what this indicates about the UK residential property market. Hulme was quoted by Property Wire explaining that “those areas with low unemployment and high levels of employment have tended to record above average house price growth. Areas with high unemployment and relatively low employment have, on the other hand, typically underperformed.”

He went on to say: “The past few years have underlined the importance of local economic health in determining house price behaviour. Other factors, however, are also key drivers of house price trends including the strength, or otherwise, of housing supply.”

An indicator for investors

This means that investors can potentially use unemployment figures as an indicator over where to place their capital. However as Hulme argued, Simon Morris would like to remind potential investors that there are other factors that determine house price growth.

Even if you invest in a market such as London, which has seen strong house price growth on the back of rising employment, you need to do your research before you invest. This will allow you to invest in London for minimal capital to maximise returns.

Leave a Reply

Your email address will not be published. Required fields are marked *