London, 10 Mar 2016
London household numbers have grown by an average 51,000 per annum over the last five years; a growth rate of 1.5 per cent per annum and well above the rate of 0.9 per cent for the whole of England.
The UK capital is expected to see continued inward migration and urbanisation over the coming years, with the Government projecting that an additional 55,000 homes will be required each year between now and 2031.
Many other European countries are facing a similar issue as people gravitate to the largest cities to live and work.
“Cities are under growing pressure from domestic and international migration,” says Jonathan Harris, Macquarie Capital’s Head of Real Estate in Europe.
“Managed properly, this trend can and should stimulate economic growth, not least in countries with an ageing demographic.
“However, migration also brings with it major structural, administrative and infrastructure-related challenges.”
One of the key challenges, but also opportunities, is to repurpose cities that were designed and built for a different time.
“The growth of many European cities was essentially driven by industrialisation,” says Harris. “Now, with the traditional industrial sector less important as an economic growth driver, manufacturing facilities in fringe areas outside major cities are increasingly becoming underutilised leaving huge areas of disused brownfield land in urban locations.
“What we have to do is find a way to remediate that brownfield land and put it to use, principally for housing but also for commercial development.”
“That’s what regeneration is all about: taking established cities, modernising them and making them fit for purpose for the modern world.”
Harris says there are implications for productivity and economic growth if the increased demand for housing is not met.
“Inflation is a serious challenge,” he says. “If house price inflation is too high then you begin to alienate people.”
“In such situations, workers are forced to live further and further away, commuting times are longer and productivity is affected.”
“It’s also harder to achieve the ‘clustering’ effect, which generates ideas and creates communities.”
Steps are being taken to address these issues.
In the UK, Chancellor George Osborne’s 2015 Autumn Statement gave local councils the opportunity to retain the proceeds of land sales, a move designed to encourage them to release brownfield sites for redevelopment.
Crossrail will transform areas of London that were previously hard to reach into accessible, commutable and relevant parts of the capital.
The Chancellor has also spent time in China, encouraging foreign investors to join British developers and investors in financing this new wave of urban development. Examples include the Chinese Dalian Wanda Group and state-owned developer Greenland, who are funding sizeable projects within inner London.
This inward investment is coupled with a number of major infrastructure projects, with London’s Crossrail—a new high frequency, high capacity railway for London and the South East—the leading example.
Many other similar projects will need to be undertaken over coming years to accommodate urbanisation trends being seen across Europe, as large cities see population growth fuelled by national and international migration.
“This is a multi-decade challenge,” says Harris. “The upside is massive in terms of economic growth but we need to make sure the right steps are taken to enable that growth.”