COMMENT Has the real estate sector bought into the Northern Powerhouse project?
Before trying to give a clear answer, it is probably worth starting with a brief overview as to what the Northern Powerhouse project is, as it often appears to mean many things to many different people and, of course, just as with so much else, perhaps Covid-19 has changed life.
To many observers and to some participants across the North of England, the Northern Powerhouse is a label to describe anywhere in the North of England, ranging from the Scottish borders all the way down to North Wales bordering with Cheshire, across through Derbyshire to the Yorkshire borders with Lincolnshire. From a human and social perspective, to a degree it is. But as someone involved in the momentum to create the concept, it is something more specific.
The theory
The Northern Powerhouse concept comes from the theory of agglomeration, in which closely located masses of people can be brought together more productively to create improvements in economic activity leading to greater wealth.
The Cities Growth Commission, which I chaired from October 2013 through 2014, was tasked with coming up with new ideas about how the UK economy could make more of its major urban areas outside of London to allow for both more shared but also stronger national GDP growth.
Our ideas had to be constrained in that we would propose initiatives that were not at the expense of London, but would be additional. We determined our analysis around the 14 metro areas – as we defined them – that had populations of 500,000 people or more. Crucially, we realised that a number of these in the North of England were very closely geographically located together. In particular, Liverpool to the west, and Leeds and Sheffield to the east of Manchester, put together, along with the towns and villages within that 40-mile circumference, had a population of around 7-8m. I sometimes tried to explain it – unsuccessfully – as ManSheffLeedsPool. This agglomeration of people is not overly different than the population of Greater London. And if its consumers and producers could be linked together as a single market, while maintaining their own civic identities and historic rivalries, it could literally be a game-changer for the UK economy.
Of course, this agglomerated area excludes a significant part of the North of England, and in reality the remainder could not be ignored. Indeed, one positive in the six years since former chancellor George Osborne brought the concept alive with the name, brand and policy focus, areas such as the Tees Valley have been among the first to show they intend to be part of it.
I often try to suggest to those in more northern communities of the North that of course they can – and should – be part of it. However, it does need to be recognised that unless the ManSheffLeedsPool part can function as a truly single economic unit, then there is nothing especially unique about this project that couldn’t be described similarly for any other geographic region of England.
Embracing the concept
Turning to the real estate sector, there was some evidence that it started to embrace the concept, with signs of increased commercial real estate building – notably in the North West from 2015 to 2019. What is amusing to me is that in addition to the Northern Powerhouse brand, perhaps just as big a driver was the consequence of the various policies that the same Conservative government introduced in 2015 to stop the persistent price increases in the high-end range of London property markets, especially the so-called buy-to-let tax. From what I understood, this essentially reduced the return which encouraged investors to turn elsewhere and Manchester and Liverpool with their central role in the Northern Powerhouse brand were immediately available to help provide a market. And there has been evidence since that this has spread over the Pennines a little to Leeds.
But these were very early days. And then Covid-19 struck.
Just the beginning
Will the notion of social distancing leave a permanent footprint long after coronavirus has gone? Does more home and flexible working remain long after a vaccine has been found? If the answers to these questions are yes, then it means the whole concept of agglomeration needs some refinement. But will it mean it loses its relevance? Will a government that has been elected primarily by winning traditional Labour seats in the North and Midlands abandon efforts to “level up”? I doubt it. Indeed, on the contrary, this crisis is highlighting by the day, the staggering geographic inequalities prevalent in modern Britain, which the real estate sector sits in the middle of.
I suspect, the tiny shifts that were starting from 2015 to 2019 will turn out to be just the beginning when we look back in the future. Smart real estate firms and investors have a huge opportunity ahead of them.
Lord Jim O’Neill of Gatley is vice-chair of the Northern Powerhouse Partnership
