Is Birmingham better than Manchester for buy to let?

I was asked whether Birmingham is better for buy to let than Manchester. And so I’ve dug out some basic capital growth and demographic information to give you a sense of how the two markets compare.

Here’s a 5 minute video explaining the article.

I like to use long-term capital growth or decline as a proxy indicator for The long-term economic health of a city.  Very simply, property prices go up or down based market drivers.  If a city has a weak economy, People cannot bid up the price of property and therefore you have capital decline.  The opposite is true as well.  So, long-term capital growth is a great  indicator for the long-term future of an area.

For long-term property growth or decline, I was think it’s helpful to look at it from an inflation-adjusted point of view.

Putting this in the simplest terms possible, imagine you buy a property for £100,000 in 2007 in a bad area.  Today you sell the property for £100,000. In real inflation-adjusted terms, your property would have gone down in value by around 45 percent.  Or in other words, the purchasing power of that £100,000 is declined by 45%.  You can only buy the equivalent of £65,000 of ‘items’ today.

The following is a screen grab of ‘Greater’ Birmingham, Showing Inflation-adjusted capital growth from 2007 – early 2021.

My comment on Birmingham: Broadly long-term capital growth hasn’t been that good.  There are widespread areas serious capital decline.  Arguably its not so bad.

For context, here’s Blackpool

Blackpool has some of the most deprived  areas in the whole of the UK.  In real terms had you bought in the most deprived area back in 2007, half of investment would have been wiped out due to real capital decline.

Next is Liverpool

Liverpool has also done badly long-term.  The following Shows greater Manchester

And you can see how overall, there are far many more areas which have shown capital growth above the 2007 high watermark.  To me this demonstrates a robust long-term economy, where people have been prepared to ‘bid up’ the price of property over time.

Let’s look at the shorter term picture. Here we have Inflation-adjusted five year capital growth based on postcode district data this is ‘Greater’ Birmingham

And you can see how in the short term there have been big capital growth increases. Let’s look at the five year picture for Maanchester.

Here you can see much stronger five year growth across the whole city. Next, let’s look at one year growth for Birmingham

Here you can see central Birmingham has declined massively in value.  Thiss would be high-rise apartments, possibly with cladding issues, which means these properties are basically not sellable until cladding issues are resolved. Next let’s look at Manchester.

Overall, you  can see much stronger one year capital growth across the whole city.

Finally, let’s look at demographics. A very useful indicator for determining how economically productive people are is their English comprehension. There is a very high correlation between deprivation and poor English skills.  The following shows Birmingham.

How to interpret this map: on the left you have a key.  The lighter the colour, the lower proportion of population with English as a first language.  And you can see in Birmingham, large parts of the region show roughly 1/3 of the population not having English as a first language.

Whereas with Manchester, you can say that a larger proportion of the overall population have English as a first language. Next, let’s look at time to rent and time to sell.  Here we have Birmingham

As I’ve said before, poor English comprehension correlates with deprivation.  Deprivation almost by definition means poverty.  If you have large areas with extensive poverty, it’s hard to see how those people can be economically productive enough to drive up the price of property.

Let’s look at the percentage of properties of total property stock on sale that is sold each month within a postcode district. In other words, if an area has ’40’, it means 40% of property stoock available to sell is sold within one month.

Here is Birmingham.

This shows the proportion of all properties on the market in a given postcode district which have been sold during a month long period. And here’s Manchester

The common theme: Both cities have very low sales turnover in city centre.  This would be high-rise apartments, which may have cladding issues or are undesirable because people want to live further out.  Overall you could say that sales turnover is comparable between the two cities, but capital growth is not similar.  I.e. Manchester has greater capital growth, because there’s obviously more competition to purchase property there, versus Birmingham.

Finally, let’s look at rental turnover. Similar to sales turnover, this is the percentage of total stock of available properties for rent which are rented out each month.  For example, 40 means that 40% of properties offered for rent have been rented out.  Therefore on average, a property might take 10 weeks to rent if turnover is 40%. Where you see ‘0’ means we don’t have data for those postcode districts.  Next is Manchester.

Rental turnover per postcode district for Manchester

Annoyingly, both cities don’t have particularly complete data, but on average you could say that there is more rental demand in Manchester than Birmingham.  This is for a couple of reasons:

• We have more data on Manchester, which means that there is a more active rental market where we can draw some conclusions
• There are more rental hotspots showing demand at 120, which means properties will rent out within two weeks

My overall conclusions:

• Manchester has a better demographic than Birmingham
• Manchester has better long-term capital growth
• Manchester also has better short-term capital growth
• Manchester has a marginally faster property sales turnover.  This is annoying if you’re trying to buy property, but it shows there is intense competition for property.
• Manchester has a marginally faster rental  sales turnover and a larger rental market assuming number of data points we have for Manchester versus Birmingham.

If I were to quantify both markets I would say:

• Manchester: 8/10 for buy to let… As long as prices don’t escalate too much
• Birmingham: 6/10 for buy to let

My main concern with Birmingham’s long-term capital decline.  When you do the calculations on buy to let, something like 70 to 80% of your ‘wealth gain’will come from capital growth, not net rental income.

Anyhow, I hope that’s helpful

Nick