Do Flats Increase In Value? – An Analysis

Are Flats A Good Investment?

Property has been a strong investment in the UK over the last decade with sustained price growth across all types of home, including flats increasing in value.

In the last 10 years property prices have risen between 50% and 75% depending on the house type.

This steady appreciation has made property alluring for British buyers and investors, many of whom see homeownership and buy-to-let investments as attractive ways to build long-term wealth.

With high demand but limited housing supply, especially in cities, UK property has delivered returns well above inflation year after year. Flats remain popular with first-time buyers getting on the ladder as well as landlords looking for yield.

Flat Prices In Recent Years

Interestingly flat prices have had two very different stories over the last 10 years.

The Golden Years For Flats

Flats actually grew faster than semi detached and detached properties during the decade of the 2010s.

This created a big gap. And by the time 4 years went by, flats had grown a whopping 39% in price. That works out at 9.8% per year. This compared to only 28% growth for houses. Flats were certainly in trend during this time.

But were flats more popular for everyone? No. These figures mask a lot of different factors at play. For example, flats are more attractive for investors looking to rent properties out. And during the 2010s there was increased interest from foreign investors who saw the UK property market as a good investment opportunity.

It can be hard to see the clear differences between price growth in flats, semi detached and detached properties. The charts normally squeeze the prices together. So we’ve broken down house price growth over a two year period from 2015 to 2017 to focus on for three main regions in the UK.

Flat Prices Growth In Yorkshire

Flat prices in Yorkshire actually grew behind other house types between 2015 and 2017. The race only became close at the end of 2017 when flat price growth finally caught up with other property types.

Flat Prices Growth in the North West

Flat prices in the North West had an excellent run in 2015 and 2017. As time went by in 2016 flat grew faster consistently for the whole of the year. Amazingly flats grew a whopping 25% in just 2 years in the North West!

Flat Prices Growth in London

In London the surge in properties took place across all main housing types between 2015 and 2017. Semi detached homes grew at the fastest in 2016 out of the three main housing types. But as you can see in the chart, all properties enjoyed growth of 50%+ in the two year period.

Flat Prices After COVID Pandemic

Suddenly during the COVID pandemic flats became less appealing. The need for open spaces started to get valued highly. And flats normally don’t have much access to their own private open spaces.

Price growth for flats began to lag behind other property types like detached and semi-detached homes.

Remote working also led to buyers looking for larger indoor and outdoor space, which boosted demand for houses over flats.

Regional Flat Prices In The UK

Flats have grown much faster in England before the COVID pandemic. In fact, back in 2014 flat prices in England grew 10% in one year!

In Scotland and Wales flats grew more modestly before COVID – sometimes hitting 5% growth in a year but more often this was lower.

When COVID did hit in 2020 flat prices came to a standstill and hovered on 1% to 2% growth in the year. At the time people were concerned about property prices and if they would have a sharp fall.

But in the years that followed the market rebounded in all three regions and posted stronger price growth than any of the previous 5 years.

How Are Flats Valued?

Valuing flats isn’t simple, but we’ll break down the main factors:

Location

Location significantly impacts flat prices. Flats in central urban areas like London Manchester, Glasgow and other city centres have higher prices per square foot. Proximity to amenities, entertainment, offices and public transport increases demand from the public and pushes pricing up. Flats further from the city centre in suburban areas are less expensive.

Flats in upscale neighbourhoods with good schools and low crime also have premium prices. So if an area sees a big change that affects these it can impact the house prices. For example, if an excellent school started to decline and got a terrible rating by the regulator this could have an impact.

Flats also tend to have a premium if they are next to desirable spots like parks, rivers and shops. As an example, flats along the River Thames in London often sell quickly with bidding wars due to location.

Condition

The kitchen strongly influences perceived value for your flat. Modern appliances like refrigerators, ovens, and dishwashers in good working order make a kitchen more desirable. Quartz or granite countertops also command higher prices over laminate.

In-demand layouts like open concept kitchens or kitchen islands help buyers visualize entertaining if they were to move in. And everyone likes entertaining!

Hardwood or high-quality laminate flooring adds value over carpeting or broken tiles. Fresh paint and functioning utilities matter too.

Fixing structural issues, water damage, mould or infestations is also critical before listing. This stops the buyers from asking more questions or asking for a second viewing.

Prices of Other Flats

Valuing flats relies heavily on recent sales prices of comparable properties in the same area. This data helps estate agents set market value.

Estate agents look at recent sales to work out prices per square foot for flats of equivalent sizes. Adjustments are then made for variances in condition, facilities and any other important factors.

Sale prices over the past 1-2 years of flats with similar bedroom counts in nearby buildings determine value ranges.

Economic trends in the local area also impact prices. Towns or cities that are desirable and in high demand will see higher prices. Normally there also needs to be access to good jobs for people to want to live in an area (or live near a train station to commute).

Some agents might research recent sales near your target property and then list the current flat with an OIEO tag to set the minimum amount.

Do Flats Swing In Price?

When it comes to the UK property market, flats have seen more dramatic price swings than houses over the last 40 years. There's a few reasons for this

City Living

For one, flats tend to be concentrated in cities, where market conditions can change rapidly. So while house prices in suburban or rural areas tend to move slower, urban flats are more exposed to things like new housing developments, shifts in buyer demand, and changes in city economies. Flats are also popular with investors and first-time buyers - groups more likely to time purchases around market trends.

You can think of flats as the ‘fast moving’ lane on the motorway. They tend to be faster to build than larger houses.

Cities can experience a jump in people living there – and this can then push prices for flats up. The exact opposite can also happen. Imagine a town that loses a major business in the area. If there are suddenly less jobs around then people probably won’t want to pay as much to live in the area. It’s more risky for them.

Safety

Flats also come with special risks like cladding safety issues or high service charges, which can quickly dent prices in a building or area when problems arise. We've seen safety issues in London with the Grenfell Tower tragedy. Terraced houses don't see values drop in the same way because they do not normally require cladding.

Are Flats Or Houses A Better Investment?

The debate around flats versus houses as better property investments in the UK has arguments on both sides. Flats (especially in cities) can provide higher rental yields. However, houses historically have tended to see stronger long term capital growth.

Flats come with risks like high service charges, cladding issues, and restrictions on changes. For example, leasehold flats may have annual service fees from £2,000-£4,000. Houses don't have those same costs and risks.

But because you pay service charges with flats  - they normally require less additional maintenance and upkeep than houses with gardens.

Many home owners make the mistake of never investing in their home when they buy the property. This can be okay for a short while – but years of underinvestment eventually catches up with homeowners.

Final Thoughts

While past performance doesn't guarantee future results, the current demographic trends point to ongoing housing shortages and price rises going forward.

For those able to buy at current values, property has previously offered a relatively safe place to put your money.

In the end, the better investment depends on your goals, budget and strategy. A balanced portfolio diversified across different investment types and locations can minimize risks while allowing you to benefit from multiple asset classes.

Do thorough research and financial analysis before deciding to invest in flats, houses, or a mix of both. Look at factors like rental demand, prices, projected growth and your expected returns. Property investing can be expensive and it's always worth obtaining advice from your financial advisor and solicitor before pursuing forward.