Britain | Housing in British cities

Little Londons

Britain’s second cities also suffer from property problems

|BIRMINGHAM AND MANCHESTER

FOR Londoners fed up with outrageous house prices, an attractive alternative is to live and work in Manchester or Birmingham. They are Britain’s joint second-biggest urban areas, with around 2.5m people each, and they are on a roll. Birmingham claims to be the only part of Britain with a trade surplus with China. In the past decade the number of professional jobs in Manchester city rose by 50%. Both have a buzzing nightlife and cultural scene, too.

Small wonder Londoners are flocking. But a familiar spectre is following them up the M40 motorway: housing troubles. A few years ago supply and demand of homes more or less balanced out, but now there is a shortfall of about 10,000 homes in Manchester city and 20,000 in Birmingham city, according to data from JLL, a property firm. Since 2005 the housing stock in the greater Manchester and Birmingham areas has grown by just 6%, half the rate seen in inner London.

By London standards, property in both areas is cheap, but that is changing. According to the Resolution Foundation, a think tank, in recent years the rate of home-ownership in Manchester has dropped further from its peak than any other region. The decline in Birmingham appears similarly large. Last year house prices in Manchester rose by 10%. Top-end office rents in Birmingham grew by one-tenth last year; it now costs just 15% less per square foot than it does in downtown Manhattan. (The City of London is still twice as expensive.)

Pricey property constrains the economy by making it hard for people to move to places where they are more productive. Manchester and Birmingham are supposed to be the engines of the non-London economy, so this is bad news for all Britain.

What is to blame? Some housebuilders are leery of urban markets outside London. In the 2000s they ploughed in, only to get their fingers burned in the crisis of 2007-08. Financiers are cautious too.

However, land regulation may play a bigger role. According to a recent paper by Christian Hilber and Wouter Vermeulen of the London School of Economics, alongside Greater London, scarcity of open, developable land is greatest in and around Birmingham and Manchester.

The cities’ large green belts—land whose only real function is to stop urban growth—hem them in. Manchester’s is five times the size of the city. Birmingham’s is smaller, but fiercely defended. The city council has submitted a modest plan to put 6,000 homes on the green belt. The central government recently blocked the proposal after a local MP, worried about the reaction of his constituents, caused a fuss.

Local politics is also to blame. Birmingham and Manchester cannot hope to house all their workers themselves; neighbouring councils must assist too. However, councils in greater Birmingham with lots of Conservative councillors resent becoming dormitory towns for a fast-growing Labour part. Trafford, probably greater Manchester’s best-off council (and its only Tory-controlled one), has seen almost no housing construction in recent years.

To be fair, these councils are given little incentive by central government to allow much development. Whitehall gives out grants to councils in such a way that almost eliminates any extra revenue (in the form of additional council tax, say) that councils could earn by allowing more development, says Mr Hilber. They are, though, left to pick up the tab for the added infrastructure needed to support the incomers.

Things may soon improve. Growing appetite from foreign investors could help solve the financing problem. Stephen Hogg of JLL says that interest from China soared after President Xi Jinping was pictured in a selfie with Sergio Agüero, a Manchester City footballer, on a visit to the city in 2015. “The phones in our Shanghai office were ringing off the hooks,” he says.

The political architecture of both cities is also changing. In 2017 each will acquire a “metro mayor” like London’s, accountable to the city-region. Ed Clarke of the Centre for Cities, a think-tank, argues that the mayors will pay less attention to local squabbles and aim to make decisions for the good of the whole city. Someone with gravitas may also do a better job of standing up to the central government’s pro-green-belt leanings (though the mayors of London have so far shied away from such battles). Unless something changes, cheap property in Manchester and Birmingham will soon be a thing of the past.

This article appeared in the Britain section of the print edition under the headline "Little Londons"

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