Where are we now?

The UK has seen varied levels of intensity from the effect of the housing bubble burst and the global recession. Although it may be hard to determine how sever the effect has been for sub-regions in regards to housing prices due to the lack of nationally recorded evidence, there is a visible difference. With stronger mini-economies like Aberdeen and London due to their exposure to specific markets, they have recovered very quickly after the bust, other regions like Northern Ireland and Wales felt the full force and the prolonged depression due to their lack of economic stimulate.

Over recent years, sub-regions in Scotland, there has been an increase in information being recorded and presented for analysis. Accompanying this, it hasn’t been all bad, with a redistribution of wealth and the decline of markets, some groups with the economy have benefited such as the first time buyer. Many first time buyers were pushed out of the market due to the excessive growth rates that housing price experienced but upon the collapse this changed everything giving them the leverage to bargain and acquire what is normally the most valued asset in many individuals asset portfolios.

Unfortunately though, history seems to always repeat itself. With property booms across the globe and clear indication of their presence, Governments are faced with the dilemma to either prick the bubbles or ride them out, with most riding them out. Historical events like the Great Depression which was a pricked bubble, caused one of the worst financial and economic contractions ever recorded and this has installed a wary defence mechanism in Government to avoid pricking asset bubbles.

5 years after the event, where are we now?

According to reports and predictions, the UK isn’t out of the water yet. With overall all GDP down 0.3% in Q4 2012 (Webb, 2013), there is optimism among some economists, for instance PwC’s John Hawksworth, chief UK Economist, who predicts a 2% growth in the economy (PWC, 2012). Although the Bank of England has been discussing more drastic approaches to boost the economy such as negative interest rates and long-term commitment to bond buying according to Reuters (2013). In the end only time will tell and it depends on the Government to stimulate the economy and lift us out of this slump, housing has greatly improved but the economic situation has far to go.

References:

Pricewaterhouse Coopers (November 2012) UK Economic Outlook: Summary report - November 2012, Available at: http://www.pwc.co.uk/the-economy/publications/uk-economic-outlook/ukeo-november-2012-summary.jhtml (Accessed: 28 February 2013).

Dominic Webb (2013) Components of GDP: Economic Indicators page - Commons Library Standard Note, London: Parliament.

Reuters (February 2013) Britain's Old Lady shows appetite for new thinking, Available at: http://uk.reuters.com/article/2013/02/28/uk-boe-focus-idUKLNE91R01Q20130228(Accessed: 28 February 2013).

UK Regional Analysis

Source: Nationwide Statistics & Office of National Statistics

This graph displays the relationship between the UK and its sub-regions, except Wales which follows an almost identical path to Scotland, in terms of house values in comparison to movements in GDP within the UK.

Looking at these statistics, it’s apparent that there is a significant difference between not only the value of houses across the UK, but the rate at which they fell and recovered, notably London which enjoyed a very quick recovery, while Northern Ireland still recedes.

Northern Ireland and Scotland are both under performers in comparison to the rest of the UK according to these figures, but on a sub-regional level how does this differ?

With the term, mini economies, being used to describe certain areas such as Aberdeen and London, which barely noticed the effect of the recession according to GVA values, it is hard to pin point the exact effect on housing because not enough sub-regional data is available to determine such an impact. However, going by the GVA it is believed that Aberdeen can attribute its success down to special circumstances according to Hacker Young (2012) who believe it is due to the exposure to the oil and gas industry, much like London is to the financial industry.

Rank	Town/City	GVA 2008	GVA 2009	Change
		(£ per head)	(£ per head)	%
1	Aberdeen	28,422	28,731	1.09%
2	Edinburgh	35,134	34,950	-0.52%
3	London	34,964	34,779	-0.53%
31	Belfast	30,819	29,816	-3.25%
	UK Average	20,911	20,341	-2.73%

Source: Hacker Young, 2012

However both Madsen (2012) and Valadez (2010) highlight that there should be a correlation between GDP and HPI or so it was within the US, it doesn’t appear to be the case with the UK, or possibly it is due to the special circumstance of the recession.

References:

Hacker Young. (2012). Aberdeen Only UK City to Create More Wealth This Year. Available: http://www.uhy-uk.com/resources/news/aberdeen-only-uk-city-to-create-more-wealth-this-year/. Last accessed 26 Feb 2013.

Madsen, JB 2012, 'A behavioral model of house prices', Journal Of Economic Behavior & Organization, 82, 1, pp. 21-38, Business Source Premier, EBSCOhost, viewed 26 February 2013

Nationwide (2012) UK House Prices Adjusted for Inflation, London: Nationwide Statistics.

Nationwide (2012) UK Monthly Indices (Post '91), London: Nationwide Statistics.

Office of National Statistics (2013) UK GDP since 1948, London: Office of National Statistics.

Valadez, RM 2010, 'The housing bubble and the GDP: a correlation perspective', Journal Of Case Research In Business & Economics, 3, pp. 1-18, Business Source Premier, EBSCOhost, viewed 21 February 2013.