Does The Price Of Oil Affect Uk Housing Investments And Real Estate Values?

By Author: Bradley Weiss
Total Articles: 272
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Cheers and jeers greet low petroleum prices, depending on where and in what sector one invests. The impact on UK real estate is minimal - except Aberdeen.



It’s a funny thing to discuss the dramatic drop in oil prices. To anyone with an interest in the petroleum and gas industries, the historic dips in prices in 2015 (from $115 a barrel in mid 2014 to as low as $44 a year later) wildly change the nature of the business and returns on investments.



But of course when energy is cheap it has a positive effect on other industries. That would include any sector of the economy where energy is a significant cost, including transportation, manufacturing and, often, real estate - mostly in the commercial sector, where owners and their investors are responsible for building energy costs.



So what might be the impact of the continued low price of oil? Might it have an effect on UK house building and the capital growth planning relative to construction of new homes and neighbourhoods?



In the entire United Kingdom, Aberdeen is perhaps ...
... the most impacted due to its relationship to North Sea oil. The city is regarded as the centre of Europe’s petroleum industry, with the world’s largest heliport sending rig workers and engineers to offshore platforms. An estimated 500,000 people work in the vicinity of Aberdeen work in the industry. As with similar fuel-based cities around the globe – Dubai, Houston and Perth, among others – Aberdeen sailed well through the 2008-2010 recession with oil priced above $100 a barrel. But now that prices are expected to stay near the $50 a barrel level for some time to come, investment in the area is cutting back. BP cut ten per cent of jobs in its Aberdeen workforce in February 2015, with other firms since following their lead. With reserves in the North Sea already said to have peaked, local economic development interests are already pushing to diversify the economy.



Investors in the petroleum sector might benefit from balancing their portfolios on a separate track, such as alternative investment funds. There are so many industries and the economy as a whole that might benefit from low energy costs. With a lower cost of producing and transporting goods, it places downward pressure on inflation and consequently the Government is less likely to raise interest rates. That in turn keeps mortgages affordable. When the alternative is to fund homebuilding over paying for foreign-sourced energy, it even seems to benefit the construction industry and its supply chain.



Reportedly, investors from the Middle East might even be drawn further to purchase real estate in London. The “safe haven “ of the UK economy has already drawn billions of pounds and thousands of non-dom homeowners to treat central London as a financial instrument; builders can only be credited for being savvy enough to serve that market.



Throughout the UK, real estate-related capital growth happens in many forms but housing is probably the most important driver. Where there is a growing population (which often means a growing company or industry that is centred in a city) there is also likely a growing need for homes. Overall, the country needs about one million additional dwellings to balance supply with demand. Funds applied to building new houses generally provide a return on assets in just a few years.



What holds back much building is not energy costs but the planning process. Strategic land investors will buy raw property that could be converted to housing. But it all requires local planning approval, something specialists in strategic land put a great deal of effort into. Capital funds are tied up for 18 months to five years in the development process – long enough, perhaps, to see the price of oil return to 2014 levels.



Housing demand is expected to remain strong for a decade or longer as the UK struggles to accommodate a growing population. Investments in housing or raw UK land can make sense in many wealth-building portfolios, however a consultation with an independent financial advisor is highly recommended.