The Northern Powerhouse

In recent posts, we’ve been looking at the rising fortunes of northern cities such as Manchester and Liverpool. We’ve noted that Manchester in particular, with its buoyant economy and rising population, has been attracting increasing investor interest – particularly from foreign sources such as China.

In 2015, the country’s leader, President Xi , made Manchester one of only two British cities he visited – raising the city’s profile back in his home country. As a result, the city has seen Chinese investors flocking to make new property purchases and, more recently, to finance new construction projects of their own. They are not alone, of course; visit Manchester today and the skyline is a veritable forest of cranes. There seems great confidence that, as the country’s second largest city economy, Manchester offers great prospects for longer term property investment – both commercial and residential.

Manchester is not the only location to which investors are warming. Liverpool is seeing growing interest, as are cities such as Leeds and Sheffield. Some of this is due to a perception that the high-priced London property market is finally running out of steam, but that is by no means the only factor. Another – and one that seems to be gaining traction – is the government’s Northern Powerhouse initiative.

The concept of a northern powerhouse was first mooted by George Osborne in 2014. He advocated collaboration between a collection of northern cities, which could use their collective strengths to achieve economies of scale and a stronger position on the world stage. He described the scheme’s intention as being to encourage “a collection of northern cities sufficiently close to each other that combined they can take on the world.”

Since then, though it remains more of a concept than anything substantial, the idea has caught the public imagination and a minister has been appointed to lead the initiative. James Wharton, MP for Stockton South, has the rather grand title of ‘Parliamentary Under-Secretary of State, Minister for Local Growth and the Northern Powerhouse.’

For the scheme to work, improved transportation links will be required, as will greater investment and – many believe – some level of political devolution, which will see northern representatives making more locally based decisions about where and how money should be spent.

There are, of course, dissenters. Some believe that the characteristic differences between cities – their traditional specialisms and different focal sectors – will mean that decisions that benefit one city will not necessarily benefit another. There are already rumblings of dissatisfaction that some cities – most notably Manchester – seem to be enjoying disproportionate benefits and that when the HS2 rail link is completed, those intra-regional inequalities will only be magnified.

Nevertheless, there will be few in the North who will take issue with the central idea: that too much of the nation’s wealth and influence is currently centred upon London, and that the capital draws far too much of the country’s talent away from the regions. A rebalancing of power – a shift towards a more equal distribution of skills, money and economic growth – can only be a positive thing for people and communities in the North. Moreover, since it has the personal backing of both the Prime Minister and the Chancellor, this is a project that the government will be keen to see succeed.

For property investors, the mere existence of the idea has already been enough to see certain areas flourishing. Chinese investors have certainly bought into the notion of a strategic restructuring of the English economy and this, together with a more widespread economic confidence, is helping to make big northern cities much more attractive to those with buy-to-let ambitions.

In the longer term, it remains to be seen what kind of investor will be best placed to capitalise on these emerging opportunities. The Chancellor’s recent attempts to hobble the small scale BTL landlord have eroded confidence in markets where margins are relatively small and where the chances of capital appreciation are modest. However, the kind of energy prevalent within Manchester and other nearby cities could well deliver much healthier yields than elsewhere in the country. Equally, relatively low investment costs – compared to London and the South East – might imply scope for more positive and sustained capital growth. If that holds true, then even small scale investors should do well in thriving northern cities.

One of the effects of the Chancellor’s recent tax hikes for investors has been to create comparatively benign conditions for larger scale property investment companies and build-to-let ventures. Here, certainly, the prospects look good but whether such enterprises will come to dominate the northern market is very difficult to predict.

Ultimately, the prospects for profitability will come down to the details of individual properties. Regional trends can only tell an investor so much; beyond that, it is a matter of scrutinising the small print. However, what seems beyond doubt is that investment conditions in certain northern towns and cities are improving – in some cases, quite dramatically – and that good investment opportunities should become considerably easier to find.

This is an exciting period. As the Northern Powerhouse initiative gains momentum, investors could see the next five or ten years delivering exceptional returns on carefully selected buy-to-let investments.