The post-COVID-19 flattening phenomenon of regional housing prices in the UK

Abstract

This paper explores whether a flattening of the gradient between high-price and low-price housing regions occurred in the UK after the outbreak of COVID-19 and assesses whether this flattening can be attributed to changes in demand among owner-occupiers and investors. Two hypotheses are established based on past literature: the Demand Increases Hypothesis and the Capital Inflows Hypothesis. These are used to explain why, in the post-COVID-19 period, the housing price gap decreased between regions with different level housing prices. The paper uses data from the period between January 2005 and October 2022 to test these hypotheses on the flattening of housing prices and identify the influencing factors that are driving the so-called catch-up effect. The two sets, which have different scales and ranges of regional housing markets, are examined: the first set comprises England’s nine regional markets, and the other set comprises the four regional markets of the UK: England, Scotland, Wales, and Northern Ireland. The analysis shows that the pandemic has drawn inter-regional prices closer and that the long-standing North–South divide has become less pronounced since the outbreak of COVID-19. However, the long-term convergence of London with other areas, and the reduction of the North–South divide, are related only to investment demand factors. This paper also finds that the flattening effect in the UK housing market tends to be caused by lower-priced areas rising to approach higher-priced areas. This flattening of the housing price gradient represents the gentrification of the low-priced regions, increasing concerns about housing affordability stress.