Much research has been done into the factors that affect house prices. Here we discover more about how consumer confidence, local transport, the environment and amenities can have strong influence on the price of any property.
1. Consumer Confidence
Consumer confidence plays a key role in determining demand for housing and therefore the cost. House prices will fall during times of uncertainty, when demand is lower. Some research suggests that up to two thirds of the variation in annual house prices can be explained by changes in consumer confidence.
The current economic and political uncertainty in the UK means consumer confidence is at its lowest point for many years.
With continued uncertainty around the impact of Brexit and with a UK election around the corner, we can’t be sure how the housing market will react to a very uncertain British politics.
An outcome many see as worst-case scenario for house prices – a no deal Brexit – is likely to supress house prices in the years afterwards. KPMG predict that a no-deal Brexit could reduce UK house prices by 6% in 2020 however they say a worst-case scenario could see prices drop by as much as 20%.
Perhaps surprisingly, transport has a very strong effect on property values. There is a theory that describes this effect called the trade-off model.
In the trade-off model, the theory is that households balance housing size and costs with travel time and costs to city centre/place of work.
Every household has their own preferences, tastes and incomes and so will make different choices about the trade-off between the cost of travel and the cost of housing. They will aim to find the optimum location for them.
The model is fairly one-dimensional because it ignores wider variables that also affect housing. But it is a useful model to describe the effects of transport links on house prices.
The theory implies that as you travel further from the city centre, the cost of housing decreases. It’s not a straight-line decrease, but a curve, as the cost of travel increases at a slower rate as you go further out.
Commuting and leisure time also form a major part of the calculation that households must make when selecting locations within which to buy. A location further out means more commuting time and less leisure time.
When large transport infrastructure projects, like Crossrail, make the world a smaller place and bring more distant housing ‘closer’ to the centre it can have a sizeable impact on prices. We have another blog exploring Crossrail.
3. The Environment
Yes, biology can play a part in house prices too. One report estimates a particularly voracious non-native invasive species, Japanese Knotweed, can decrease effective house prices by 5%. It can also make it harder to secure mortgages on a property. This is because it is so hard to get rid of; if you have a knotweed problem, this RHS website is a good place to start.
Another factor in the negative category is traffic and road noise, which have been shown to have a depressive effect on house prices. One study, based on properties in Glasgow, reveals that every decibel increase in traffic noise over 68dB leads to a circa 1% decrease in prices.
Surprisingly, the time of year of sale also has an impact on house prices. An annual cycle of ‘boom’ and ‘bust’ is visible in housing markets in the US too. The price you might pay for a property tends to follow an annual pattern, increasing throughout Spring, leading to higher prices during the summer, and falling slightly during Autumn, leading to lower prices during the winter.
4. Great Amenities
Although it’s difficult to determine the cause and effect, there is a clear correlation between access to amenities and local house prices. Research by Lloyds Banking Group in 2018 suggests that living near a local supermarket can boost your house price by an average of £21,500. The “Waitrose effect” appears to add the biggest premium, with Marks and Spencer closely behind.
Using supermarkets as an example of important amenities, we can get a feel for how other types of amenities might affect prices of properties near-by. Good sports and leisure facilities may increase local house prices in the same way, with evidence around properties near to the Olympic Park and Emirates Stadium in London.
A high-quality school will push house prices up too. Schools are often a reason for moving to an area and form a major part of the decision making for many households in the market for a new home. Where there is an above average school, houses attract a premium of between 3% (for slightly above average) to 12% (for the most successful schools). In areas with below average schools, houses are priced on other factors.
Finally, broadband is an increasingly important amenity and slow speeds are a no-no for many households. A study in 2014 (using data from 1995 to 2010) by the LSE showed that property prices could increase by as much as 3% for each doubling in internet speed in an area, however this only applies up to a point. The study seems to show that there is a point that speed is ‘fast enough’ and beyond this the increases in speeds don’t have much effect on house prices.