We have widely reported the recent insatiable demand for property bought about by a combination of pent-up demand from the pandemic, stamp duty holidays and the underlying strength of the economy, or at least the strength of the sections of the economy that are able to buy property.
This week, we take a look at where the demand is coming from. Note that we measure demand in the housing market by focusing on the volume of sales agreed on properties which are on the market.
Growth Share Matrices
Having spent a number of years in managerial and board level roles, I am familiar with the theory of business strategy as well as the practice.
One of my favoured tools is the BCG Growth Share matrix, which although created in 1970, if used properly, still holds weight today.
We will adapt the BCG matrix to look at the growth / share of sales agreed by region, property type and price band.
At all times we will look at the share of the market in 2021 to-date. Because 2020 was so volatile, it makes sense to measure any growth by comparing 2021 to-date with an equivalent time period in 2019.
With the background analysis points over, let’s get on with sharing what we have discovered.
The growth share of sales agreed by UK region is shown below;
Note that the horizontal and vertical lines represent the average share and the average growth respectively.
If we begin by looking at the best performing quadrant for property demand in the top right-hand corner, we can clearly see that the South of the UK has been the most impressive, with a higher than average growth but also with a larger share of the total market.
In particular, it is worth pointing out the South East region, which has the highest share of the market of any region at nearly 17% and still managing to grow agreed sales by in excess of 47%, which is a compound annual growth rate (CAGR) of over 21%.
It is also worth highlighting that although initial demand in London was sluggish as a result of the rush to get out of the city because of the pandemic, we can certainly say that it has bounced back stronger in 2021.
Although the Midlands, Yorkshire and the North West experienced lower than average growth, their performance in terms of sales agreed growth is still good, being just below average in most cases, and we have to remember that their share of the total market is comparatively high.
The North East is the “question mark”. They have a low share of the market, but they actually experienced the highest growth in demand above any region of the UK.
Scotland has by far the lowest growth in the UK at 15% (or a CAGR of only 7.4%). In part, this is down to the ending of the stamp duty holiday to the original timetable, but we also have to remember that their share of the market is relatively low.
Demand by Property Type
The growth share of sales agreed by property type is shown below:
The growth of demand for detached houses and flats has been much greater in 2021 to-date than in 2019. They both have compound annual growth rates of 20% per annum.
Although semi-detached properties have the largest share of the market, their growth is 4% points off the average and c.10% points off of detached properties.
Demand by House Price Bands
The growth share of sales agreed by price band is shown below:
It is quite clear that the highest levels of demand growth have been experienced by the highest priced properties. Where properties above £750k have an 83% growth rate. Even with this high growth, they only occupy 6% of the market in 2021.
Relative growth in the lowest priced bracket of £0-150k has been much slower than average, with growth rates since 2019 struggling at 4%.
The highest share is reserved for £250k-£500k properties and these have also had above average and exceptional demand growth rates.
We continue to comment that it will be interesting to see how far into 2021 this level of demand for property sustains, not least because of the relative lack of supply volumes. However, what the analysis above clearly displays is that it is those that can afford higher value properties who are driving the demand. These buyers are perhaps less affected, or have been to-date, by the economic shocks of the pandemic and as such the underlying property market remains strong.
On the converse side, we are not out of the recessionary threat yet as the economy is still exceptionally fragile, or even non-existent, in certain sectors. This, coupled with inflationary pressures and the looming threat of higher unemployment levels, begs the question, will this drag the whole economy into a recession? At this stage, it is difficult to be certain and we will leave this to the economists, but you can be sure that we will keep an eye on the property impacts of the economy for you.