In 2015, George Osborne announced plans to create a Northern Powerhouse. This inwards investment scheme is planned to improve infrastructure, encourage construction and enable local economies to share talent and expertise, expanding viable commuter belts (1). Northern Railway announced the commencement of their role in the Northern Powerhouse this week by releasing their 4-year strategy that will see increases of 37% in peak-time travel capacity by 2019. Northern Railway are set to invest over £1billion to “transform rail travel in the North” throughout the tenure of their franchise (2).
Source: https://www.northernrailway.co.uk/news/latest-news/277-northern-franchise-timeline
In a report by Opera for the Rail Delivery Group in 2014 (3) the following was found to be true of the impact railways have on the UK economy:
2014
- Gross Value Added (GVA) per year: £9.3billion
- Value of yearly benefits to firms through sharing of knowledge and people: £1.4billion
- Additional productive potential of the economy: £10.2billion
- Increased output due to reduced transport costs: £0.4billion per year
Ignoring the inevitable economies of scale and efficiencies from improved technology and processes, the Northern rail investment could lead to 37% increases across the board (2):
2019
- GVA per year: £12.74billion
- Value of yearly benefits to firms through sharing of knowledge and people: £1.92billion
- Additional productive potential of the economy: £13.97billion
- Increased output due to reduced transport costs: £0.548billion per year
37% projected increase in rail revenues, 37% projected increase in sharing of talent, 37% projected increase in productivity. Rail however is not the only major scheme to contribute to boosts in local Northern economies.
Transport Secretary Patrick Mcloughlin is quoted as saying: “This one-nation government is determined to close the economic gap between North and South. Investing in Transport […] is vital to making that happen”(4); this hinges on the UK’s ability to connect major conurbations in order to trade and thus create employment. The Department for Transport predicts that the £13bn dedicated towards improving the road networks spanning Yorkshire, the North West and North East will create 2000+ jobs and contribute £4.8bn to their local economies in the financial year 2020-21 (6). According to Positive Money, an economics commentator, the more money in an area, the faster house prices rise (5).
Herein lies the opportunity for property investors. There will inevitably be lag between the beginning of an infrastructure investment scheme such as the Northern Powerhouse and the economic pay-off (including capital growth of property). Therefore, house prices may in the short term remain modest, creating a window to invest in areas such as Sheffield, Yorkshire, Manchester, County Durham and Liverpool whilst improvements works are carried out.
Once complete, investments could be set to rise in value particularly if laggard-investors spot the opportunities and drive up demand
Disclaimer and Legals
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References
- https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/427339/the-northern-powerhouse-tagged.pdf
- https://www.northernrailway.cuk/news/latest-news/277-northern-franchise-timeline
- http://www.oxera.com/getmedia/802a4979-8371-4063-ad24-8a81ed6c8f82/Contribution-of-rail-to-the-UK-economy-140714.pdf.aspx?ext=.pdf
- http://www.ibtimes.cuk/government-outlines-13bn-blueprint-northern-powerhouse-enlists-bra-queen-michelle-mone-1514894
- http://positivemoney.org/issues/house-prices/
- https://www.gov.uk/government/news/government-boost-for-northern-powerhouse
