Any major decision made on a national level demands a multitude of trade-offs and compromises, whichever way said decision ultimately goes.
Prime minster Rishi Sunak’s recent announcement that high speed rail link HS2 will no longer go further north than Birmingham is no exception.
The not entirely unexpected declaration to axe the Birmingham to Manchester link has been met with howls of fury at one end of the spectrum and with joyous rapture at the other.
From our dealings with small and medium-sized enterprise (SME) property developers so far, it seems that many have reacted firmly between the two.
Because SME developers tend to focus on the relative short term, immediate hard costs for them will likely be minimal. However, there is widespread belief that the opportunity costs of Sunak’s decision could well be heavy for the UK economy.
Opportunity costs
Kent offers the clearest example of how new or refreshed rail links can transform not just a region but provide a boom for the larger UK economy.
HS1, which connects the Channel Tunnel to Kent, opened in late 2003. This was followed by Section 2 at the end of 2007, which extended this link to Central London. Historically, Kent was not considered to be part of the capital city’s commuter belt. Drastically cut journey times into London changed this immediately, spreading wealth and job opportunities far beyond the M25.
A 2019 report produced by HS1 says that the route produces almost £430m of economic benefits to the nation per year partly to faster journeys, “but also through new jobs created by the businesses that have set themselves up on the route because of the diverse and skilled international workforce now at their fingertips.”
It also states that because land and, consequently, housing is much cheaper in Kent than it is in London, “HS1 has brought affordable housing within the reach of tens of thousands of young couples and families.” The report adds that as of 2019, 164,000 households in Kent had gained access to London’s labour market thanks to the high-speed connection.
It also says that the quicker trips into London reduce CO2 emissions by the equivalent of 60,000 short-haul flights each year.
Nothing is inevitable
It must be said that highlighting these opportunity costs the inevitable price of cancelling the northern legs of HS2 are contingent on there being no further development at all – and we believe this to be unlikely.
In his announcement, Sunak said that the £36bn that is projected to be saved will be reinvested across the country’s transport infrastructure, with promises made so far including the re-opening and expanding of existing train lines and stations, the fixing of potholes in roads, and plans to ease congestion on some of the nation’s busiest roads.
And today it is clear that the lack of connectivity between major northern cities is an opportunity cost the national economy has suffered for a very long time. This could be fixed if infrastructure is bolstered.
For a reference point, London and Newcastle lie 300 miles apart with a non-high-speed train journey time of 2 hours and 45 minutes.
Newcastle and Leeds, meanwhile, are only 90 miles from each other – just under a third of the distance from London. It takes 1 hour and 15 minutes to travel between the two.
And the distance between Newcastle and Manchester is 145 miles, which takes 2 hours and 10 minutes to traverse by train.
Norman Peterson from North-East developer, Homes by Carlton, which develops houses close to road and rail and airport networks says: “While HS2 was not planned to route to the North-East, an upgraded rail network that links Hull to Liverpool with a faster service would certainly increase the economy in areas that are not yet served by a modern rail network.
“Providing this would open more housing and job opportunities to a wider geographic area as travel times reduce. After all, The York property market benefitted in from the electrification of the East Coast Main Line in the early 90s by offering a 1 hour 45-minute journey time to London. The spokesperson adds, “Let’s hope we enjoy the same effect with a redeployment of HS2 funds.”
In HTB’s view, making these cities easter to travel between would be the true ‘levelling up’ that the Conservative government made such bones about back in 2019.
The more things change…
This being politics, it is difficult to tease out any real timeframes and budgets for proposed alternative developments. In scrapping so much of HS2, this government has shown that it is prepared to make radical decisions. It has also demonstrated a willingness to introduce huge levels of uncertainty into the business environment, which explains some of the extremely negative reactions from many people in other business communities, such as the technology sector.
But this is the environment that SME developers have worked within for many years. Big projects and plans and regulations are always being proposed, touted, argued over, then changed or dropped. As such, those who operate property development businesses in the Midlands and the North of England are resilient. They know how to develop successfully with or without HS2.
Some clarity from the government over future plans would be just the ticket, though.
Neil Leitch is commercial director, development finance at Hampshire Trust Bank
