Why Are House Prices in Edinburgh Expected to Rise?

Barely a day seems to go by when Edinburgh isn’t topping a table in some way linked to future house price growth.

Property reports, from the likes of Hometrack HPI and Zoopla, often comment on the capital’s surging property values, and frequently forecast Edinburgh at the top of the table for future house price growth - leaving homeowners rejoicing while those struggling to get a foothold on the ladder lose out further.

But the reasons why these reports point to Edinburgh being at the top of the tree in terms of house price growth, aren’t always made clear. Let’s take a look at some of the factors that have led to the current boom period in Edinburgh.

In reality there are a number of contributors which are likely to cause house prices to rise more quickly in Edinburgh than in most other areas. Here, we look at three of the major drivers or house price growth in the Edinburgh property market.

Population Mix

It may come as a surprise to some that Edinburgh is the second fastest-growing city in the UK after Manchester, with a 12% rise in inhabitants since 2006.

Thanks in part, to its expanding tech and finance sectors, as well as university graduate settlers – the ratio of demand to supply is becoming increasingly unbalanced.

Exacerbating the problem for buyers is today’s healthier ageing population, which is seeing residents staying in their homes for far longer than what has previously been the norm, keeping homes from being freed-up and put on the market.

Generally speaking, older people tend to live in smaller households and younger people in larger households so as the population ages, the average household size is expected to decrease. This means that projected growth in the number of households is even faster than projected population growth.

Projected growth in the number of households in Edinburgh and Midlothian over the coming two decades stands at 30 and 31% respectively – faster than in any other council area in Scotland.

In short, demographic shifts in Edinburgh have meant that demand for housing in the capital has been rising and is going to continue to rise sharply for some time to come.

History

One of the key causes of Edinburgh’s rising property costs is its tough planning conditions stemming from the city’s ancient history.

For instance, Edinburgh’s World Heritage status means that many of its buildings are listed, and much of its untouched land is labelled as conservation areas.

The strong protection over Edinburgh’s assets can be an obstacle for home builders, restricting both the types of properties that can be developed and where they can be developed too, limiting the amount of new homes being built.

Put simply, new homes are struggling to be built fast enough to meet rising demand.

It isn’t just about building houses, either. The infrastructure required to support new communities in terms of schools, transport links and libraries, for example, needs to be built as well making it even tougher to keep pace with the rising demand for homes.

Tourism and the Rise of Short-term Lets

Edinburgh’s standing as a top tourist destination is another factor that’s pushing house prices up.

Landlords have always been able to generate superior rental yields during the busy Festival period and the growth of sites like Airbnb has made it easier for investors to rent properties as short-term lets all year round.

In fact, there are around 10,000 listings on Airbnb – and the number of available properties has risen by over 50% in just 18 months.

In addition, Edinburgh’s world-renowned festival and beautiful city scape continues to attract second home buyers, keen for a stunning holiday home in a location with culture.  

Whether or not the predictions of the market’s continued growth will be proven true is yet to be seen and we’re always hesitant to make bold predictions regardless of the prevailing winds.

But in the current climate, with all the above factors taken on board, the smart money would appear to be on Edinburgh's housing market to outperform most of the country.

If you are thinking of buying or selling a property, be sure to get in touch with Warners on 0131 667 0232 or at property@warnersllp.com and one of our team will be delighted to help.

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