The bigger picture

Governments worldwide have a long history of selecting entire regions—small, focused urban areas and entire swaths of geography in equal measure—for active development, usually (at least historically) involving massive infrastructure work pivoting on a unique industry. Canada actively grew its mining industries in Manitoba and northern Ontario, China has mastered special economic zones across the country, and in the US the barren Nevada was selected as a tourism destination (though admittedly not by government initially). In the UK, governments have reenergised London’s urban core by targeting key districts, and applied that same process to the well-established Northern Powerhouse, anchored by Manchester. While it’s not new by any stretch of the imagination, the lower key Midlands Engine—with Birmingham as its heart—is ready to take centre stage.

Revving up

Back in 2017, the central government in the UK committed to stimulating economic growth in the Midlands area and to re-invent it as a modern industrial region in the way local councils remade Shoreditch, Battersea and King’s Cross in London. The goal was for the government, business and education to work together in order “to build a collective identity, to enable us to present the Midlands as a competitive and compelling offer that is attractive at home and overseas.”

The Midlands is home to 10 million people, 800,000 businesses, almost two dozen universities and includes the cities of Birmingham, Coventry, Leicester, Nottingham and Stock-on-Trent among others. The new investment includes nearly £400 million for transport, £20 million for skills development, £250 million for small business support, urban regeneration in Nottingham and expansion into space technology for the University of Leicester. As the UK’s second largest city, Birmingham is at the fore of the Midlands’ rebirth, with a diversified economy in the top three for UK foreign investment, over 12,000 start-ups in 2017, upgrades well under way for its rail stations, including a high-speed rail link, and UK-best property price growth to 2022.

The new investment stems from what the UK government sees as underperformance that can be exploited. According to The Guardian, “the government says that too many graduates leave the region after university, one in eight people in the West Midlands have no qualifications, and poor transport links between areas means ‘the whole sometimes adds up to less than the sum of its parts’.”

Correcting poor economic growth and a dearth of skills is wise under any circumstances, but it is worth noting that the Midlands Engine scheme was born after the 2016 Brexit vote, of which the Midlands was overwhelmingly in favour (as was the Northern Powerhouse area). “We have secured £392 million for our region but London has been awarded near 10 times that amount for housing alone,” Jack Dromey, Labour MP for Birmingham Erdington told BBC in March 2017. “Neither does the fresh investment begin to compensate for the huge cuts to council budgets. Birmingham alone has lost £700 million. This pales in significance compared to the commitment made to London. Once again, Birmingham and the Midlands are in danger of being left behind.”

Why the Midlands

Whatever the reasoning behind the scheme—political, reactionary or simply wise—it is forging ahead, and there’s a great deal about the Midlands Engine to appeal to investors (as of print, the parliamentary Brexit vote had not yet happened). The Midlands economy already accounts for 13% of the UK’s GDP (almost £220 billion) and the capital thinks that could rise. A boost to the Midlands includes aggressively pursuing greater international trade in the region, opening new markets, emphasising innovation and promoting the Midlands’ high standard of living as well as the updated transport links and improving skill levels among residents.

According to its five-year 2018 UK Housing Market Forecast, Knight Frank noted that average housing prices are currently 22% higher than during the market peak in 2007—but they’re 60% higher in London. No one needs an analyst to understand the math, and that an emerging district like the Midlands is a smart investment. Nonetheless, the price projection for the Midlands still lags behind the Northern Powerhouse, which is predicted to gain an average of 12.3% in price growth versus the Midlands Engine’s 9.45% through 2023. That said, purchasers could be more confident: Knight Franks’ research stated that the length of time between listing and sale of a property was among the quickest in the UK, and those gains do rival the pricey London. A proposed additional 1% stamp duty on overseas buyers will drive purchasing costs up, making lower prices attractive to first-time or mid-level purchasers.

But as John Gunning, director of Hong Kong-based Top Capital Group, a considerable investor in Birmingham, sees it, London contracting and Manchester possibly oversupplying positions the Midlands’ early cycle status well for investors, specifically in the residential sector. Birmingham alone has well-documented infrastructure and business plans already attracting MNCs like PwC and Deutsche Bank, creating jobs and offering “a better quality of life at a fraction of the cost of living in London,” says Gunning, arguing those are “key reasons why more and more people are now moving to Birmingham” and driving residential demand. As the first major stop on the high-speed rail link, the city is the gateway to the burgeoning Midlands Engine region, and the smaller centres will benefit from its growth and increased connectivity within the region. Finishes Gunning: “Wolverhampton is a prime example of a growing city that will be connected to Birmingham city centre by the West Midlands Metro in 2020 and will therefore attract more investments down the line.”