Cambridge: building its global future

Cambridge
 
New jobs need new houses

15 September 2017, by Savills Research

Cambridge is a popular market, but needs to increase housing delivery across a range of price points and tenures to address affordability

 

Cambridge continues to suffer from significant pressure on housing, and failure to address the problems could impact the market going forward. Ongoing affordability constraints are limiting the number of workers who can live in the city, pushing people out into surrounding areas and putting pressure on the already overstretched local infrastructure.

Affordability constraints

The city of Cambridge has seen rapid house price growth over the last five years of 55%. Growth in South Cambridgeshire has been slightly slower over the same period at 43%, but both have significantly outperformed the England and Wales average of 29%.

Median full time earnings within Cambridge in 2016 were £30,855 per annum, according to ONS. While this is higher than the UK average, the spending power of different residents varies massively. Employees in the professional, scientific and tech sector make up 16% of Cambridge’s total employment market, yet contribute more than 20% of the city’s total GVA. These industries are fuelling earnings at the top end, but annual pay in the lowest percentile is only £16,460.

In terms of value per square foot, Cambridge behaves much more like London than the rest of the East of England. Central Cambridge, at £630psf, is achieving equivalent values to Zone 2 locations in London, such as Brixton. With the average house price in the 12 months to May 2017 standing at £490,000, homes in Cambridge are currently 13.5 times more than earnings. This makes it one of the least affordable places in the country.

FIGURE 7

Another London Cambridge has seen similar levels of house price growth to London

 
Figure 7

Source: Savills Research

New build market

In last year’s report, we calculated that Cambridge and South Cambridgeshire required a combined housing target of 2,415 new homes a year, with affordable housing accounting for 35% of delivery in Cambridge and 30% in South Cambridgeshire. This target is 765 homes higher than the current objective assessment of need.

Nevertheless, Cambridge city is delivering above average numbers of new homes – in the 12 months to May 2017, new build homes accounted for 31% of the 1,566 residential transactions recorded by Land Registry. Across England and Wales this number was just 10%.

Yet, current sales of new build stock in Cambridge are more concentrated at the top end of the market compared to secondhand, and above the Help to Buy cap of £600,000. Moreover, demand from investors has dropped over the past year, leaving developers reliant on the owner-occupier market for sales. As a result, asking prices are under pressure – values on the large urban extensions around the city have dropped by 5-7% over the last year.

Rental pressures

A lack of investors also has the potential to reduce rental stock going forward – especially in the prime family market. This market is currently very strong, with values increasing by just under 5% over the last year. Cambridge city has seen high levels of housing delivery over the last couple of years, yet it needs more. Future residential development needs to offer a range of products and tenures at the right price point to ensure that the affordability gap does not widen yet further.

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Jim Ward

Jim Ward

Director
Residential Research and Consultancy

Savills Margaret Street

+44 (0) 20 7409 8841

 

Gaby Day

Gaby Day

Research Analyst
Residential Research

Savills Margaret Street

+44 (0) 207 299 3003