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For UK tech to thrive, we need to build more homes

The continued success of tech in the UK is critically interwoven with the supply of housing 

January 17, 2019

The UK’s digital tech sector, already the largest in Europe, is going from strength to strength. However, our research shows housing shortages could create headwinds that threaten the continued growth of the sector. 

The UK’s technology sector is currently growing 2.6 times faster than the rest of the economy. Moreover, we’re witnessing a ‘Cambrian moment’ for tech start-ups. The creation of tech firms is at an all-time high - according to Tech Nation, a new digital tech start-up is founded in the UK every 50 minutes. Fast-growing UK firms such as Improbable, TransferWise and Farfetch are renowned the world over and backed by some of tech’s biggest investors. 

The incredible growth of tech is being felt right across the UK. In the nation’s eleven largest tech clusters, digital tech firms posted almost £100 billion in revenues in 2017 – up 9% on the previous year (see chart). Tech sector employment has surged too, with more than half a million people now employed in these cities by digital firms. Furthermore, as tech workers tend to be more productive than their peers in other industries – to the tune of about £10,000 per job per year – rising tech employment delivers greater economic benefits than employment growth from other sectors.

How the UK’s tech communities rate their quality of life

For tech to continue to thrive in the UK, more needs to be done to improve the supply of skilled workers, finance and affordable workspace. Equally important, however, are a broader range of quality of life factors that help pull talented individuals and ambitious firms to key tech hubs. 

When asked by Tech Nation’s 2018 survey about their perceived quality of life in their local areas, more than 80% of the UK’s tech community were positive about their overall quality of life. Respondents were similarly positive about their access to local amenities, such as restaurants, shops and cinemas. Moreover, when asked about other factors that influence quality of life, such as the quality of local schools, transport and digital infrastructure, responses were also generally positive.

One measure where respondents were less satisfied, however, was cost of living. Across the UK, only 39% of those surveyed responded positively when asked about their cost of living. These concerns were most pronounced in London and Cambridge, where just 19% and 13% respectively responded positively.

Why housing is a key component of UK tech’s continued success

Housing is, of course, the principal cost of living faced by most people. Across the UK’s top tech clusters, house prices have risen by an average of 35% over the last five years. In Reading, where house prices have increased by 44% since 2013, the average home is more than seven times a typical tech worker’s annual salary. In pricier Cambridge, homes are more than ten times the typical tech salary.

Housing costs are likely to get worse over coming years as supply becomes tighter. In London, for instance, it’s estimated that 66,000 new homes will need to be built every year for the next five years to keep pace with demand. However, over the past five years fewer than 20,000 homes have been built in the capital per annum. Similar shortfalls can be expected across the UK’s other major tech hubs – Manchester will need around 9,000 new homes over the next five years, but has only managed to build a little over 3,000 in the last five. 

Changes to living habits are also likely to make the housing shortage more acute. Growing preferences for living in the centre of towns to access amenities and avoid lengthy commutes means not only that there isn’t enough housing being built, but also that lots of the stock is being created in the wrong places. 

This is cause for concern. The dynamism and sustained success of any city is critically interwoven with the supply of its housing. As constrained supply drives up costs, it becomes harder for talented individuals to relocate for work. This both deprives businesses of much needed skills and drives up the costs of talent as firms need to better compensate workers to offset their higher housing costs. As access to talent and finance are, according to Tech Nation, already the two biggest challenges facing UK tech firms, improving the supply of housing is a critical component of UK tech’s continued success.

Creating a housing market that works for UK tech

More homes need to be built across the UK’s key tech hubs for the sector to continue to thrive. Growing ranks of people employed in digital tech, combined with greater preferences for locating in areas with broad amenity provision, means that property developers will find that there’s underserved demand for housing in the centre of the UK’s key tech clusters. Homebuilders targeting tech sector workers should look to incorporate amenities – including bars, restaurants and co-working spaces – into their developments. Moreover, demand from younger tech workers will likely support alternative forms of development, such as emerging ‘build to rent’ housing.

Solving the housing crisis will rely on coordination from many different stakeholder groups, including property developers and local authorities. However, without concerted efforts to increase the supply of homes across key tech hubs, the future of UK tech won’t be as bright as its recent past.

This post was written by Owen King, Director of Occupier Research, and Nick Whitten, Director of Residential Research