IN FOCUS6-8 min read

Can real estate investment help narrow geographical inequalities in wealth?

The wealth gap between the wealthiest and poorest is significantly bigger in the UK than other advanced economies. Why? And can real estate investment help fix it?



Mark Callender
Head of Real Estate Research
Christopher Santer
Fund Manager, Positive Impact Investment, Real Estate, Schroders Capital

While all countries have a mix of wealthy and relatively deprived areas, the gap between the two is particularly wide in the UK.

Much needs to be done to tackle the complex and multi-faceted causes of deprivation. But we think that developing real estate assets with a set of defined social and environmental objectives, known as “place-based impact investing” (PBII) can contribute.

How big is the wealth gap?

Last year, economic output (GDP) per head in the UK varied from £65,500 in Kensington & Chelsea (London) the wealthiest area, to £14,300 in Torbay (Devon) the poorest area. That’s a five-fold difference.

International comparisons suggest that the range in income per capita across different parts of the UK is significantly bigger than in other advanced economies such as France, Germany, Japan and the US. It is closer to Hungary and Poland. What’s more, the gap within the UK appears to have widened over the last decade.


The government’s index of deprivation - used to allocate public spending - provides the most comprehensive picture of local variations in affluence in the UK. The index is updated every 4-5 years, split by country1 and covers over 40,000 neighbourhoods and includes a range of economic and social indicators including crime, education, health and income (see figure 2).

All the indicators are measured on a relative basis. This means that while it is possible to track relative changes in the fortunes of different neighbourhoods between successive studies, it is not possible to measure absolute changes in the level of deprivation. It also means, by definition, that the number of neighbourhoods which see an improvement over time is balanced by the number seeing a deterioration


What are the causes of deprivation?

Before we go further, it is worth noting that although poverty and deprivation are often used interchangeably, they are different.

Poverty refers to a lack of income. By contrast, deprivation refers to people’s unmet needs and missed opportunities i.e. the results of poverty. For example, having no choice but to live in an area with poor public transport, or where the local schools struggle to recruit teachers. The overall index of deprivation is compiled by weighting data for different domains (education, health, income, etc).

The data from the Indices of Deprivation point to three broad conclusions.

1. Broad geography is less indicative than you might expect

The most deprived areas – those in the bottom 10% of the ranking - are spread across the UK. They are not all concentrated in “the North”, or in inner cities.

Three-fifths of local authorities have a least one neighbourhood which is among the most deprived nationally and a sixth of the most deprived areas in England are in “the South” of the country (here defined as London, South East, South West and East of England).

Deprived areas fall into six main groups, most of which are unified by a historical lack of economic diversity and/or reliance on a defunct, or waning industry.

  • Towns and villages which used to be dominated by coal mining (e.g. Durham, Lanarkshire, South Wales valleys), or quarrying (e.g. Portland, St Austell).
  • Towns which were built on a single industry, which is now in decline, or has disappeared: chemicals (e.g. Widnes), engineering (e.g. Middlesbrough, Walsall), pottery (e.g. Stoke), shipbuilding (e.g. Birkenhead, Greenock, Wallsend), steelmaking (e.g. Motherwell, Redcar, Sheffield), textiles (e.g. Bradford, Burnley, Derry, Kidderminster, Huddersfield, Paisley).
  • Victorian seaside resorts (e.g. Blackpool, Clacton, Great Yarmouth, Hastings, Rhyl).
  • Remote rural areas (e.g. Ards Peninsula, Cornwall, Lincolnshire).
  • Ports which have lost most of their activity (e.g. Chatham, Grimsby, Hull, Liverpool).
  • Areas of major cities which are either close to the centre (e.g. Canning Town, north-east Manchester, Hackney Wick, Hodge Hill, Ladywood), or are further out and have relatively poor public transport and other amenities (e.g. Barking & Dagenham, Brent, Haringey). It is an inconvenient truth that some of our most dynamic cities are also the most unequal2.

2. Deprivation often represents multiple underlying challenges

Deprivation indicators tend to correlate - quite highly in fact – meaning people living in the most deprived areas often have to contend with multiple indicators on the list, beyond lower incomes. They are also more likely to be the victims of crime, to attend schools which are struggling3 and to be in poor health.

Strikingly, figures on life expectancy show that the healthy life expectancy of women living in the most deprived areas is 19 years shorter than that for women in the least deprived areas4. The corresponding difference for men is 18 years.

People living in the most deprived areas therefore often face multiple challenges. Tackling deprivation requires both good local leadership and co-ordination across different agencies. Although a secondary consideration, reducing deprivation should also help to cut government spending on health, welfare, etc over the long-term.

3. Complexity of deprivation causes doesn’t mean progress isn’t possible

Despite that fact that the most deprived areas often have complex and deep-rooted problems, it would be wrong to assume that they cannot improve.

Table 1 compares the ranking of 31,672 neighbourhoods5 in England in 2019 with their ranking in 2010. The neighbourhoods have been split into deciles with the most deprived (decile 1) in the top left and the least deprived (decile 10) in the bottom right.

81% of neighbourhoods in the most deprived decile in 2010 were also among the most deprived nine years later. However, 19% saw a relative improvement. Among the improving neighbourhoods, 17% improved to the second decile, 2% rose into the third decile and a handful rose into the fourth decile.

Conversely, given that deprivation is measured on a relative basis, an equal number of neighbourhoods fell into the most deprived decile over the same period6.


How can it be tackled?

Most of the net improvement in terms of neighbourhoods moving out of the most deprived decile between 2010 and 2019 was in London. By contrast, most other parts of the country saw a net deterioration , i.e. more neighbourhoods dropped into the most deprived decile in 2019 than in 2010.

The exceptions were Liverpool, Manchester, Newcastle and Sheffield, where the number of neighbourhoods seeing a relative improvement and deterioration were broadly in balance. However, this was only the case in the city centres. In the surrounding metropolitan boroughs, the number of neighbourhoods in the most deprived decile increased between 2010 and 2019.

At first glance, the above suggests a zero-sum game. Was the improvement which some of the most deprived neighbourhoods recorded simply a relative improvement, balanced by other neighbourhoods becoming more deprived? Surely real progress would only be the result of an overall fall in deprivation?

The good news is that data at local authority level suggest that the improvement was mainly due to a fall in deprivation i.e. there was an absolute improvement as well as a relative one.

For example, unemployment in some of London’s most deprived boroughs (e.g. Barking & Dagenham, Hackney, Newham, Tower Hamlets) fell more quickly than the national average between 2010 and 2019. Life expectancy increased from below the national average to on a par. The data on crime are more equivocal. On the one hand, crime rates in Hackney, Newham and Tower Hamlets did not increase in line with the national average between 2010 and in 2019. On the other hand, they remained above the national average.


What causes improvements in deprivation?

Why did certain neighbourhoods grow less deprived between 2010 and 2019? Part of the answer is probably due to the fact that both London and Manchester saw relatively strong economic growth during the last decade. This growth benefited some of their most deprived neighbourhoods.

However, it probably also reflected local initiatives in education, training and health and private and public sector investment in new housing, commercial buildings and infrastructure which involved the local community.

As pension beneficiaries and policyholders have grown more demanding on social and environmental responsibility, real estate investment has increasingly sought tangible solutions to social deprivation. This has led to the inclusion of positive impact in mainstream strategies.

As mentioned previously, PBII is the act of developing real estate assets with a set of defined social and environmental objectives. Indeed, environmental and social goals are often mutually beneficial; a focus on one can frequently improve the other. For example, improving the energy efficiency of social housing cuts fuel bills and enables households on lower incomes to spend more money on other things. PBII schemes can be complex, with long gestation periods, so investors in them require a long-term view. Even so, we believe this type of investment strategy creates assets that are both defensive and can drive enhanced long-term financial returns, while making a real difference.

Read more: What is place-based impact investing

It is of course critical that any contribution sought by an investment can be measured. Additionality - delivering improvement or opportunities that would not have otherwise happened – is a key principle.

Each asset will have clearly defined targets to be achieved throughout its asset management strategy. It might be square meterage of affordable workplaces or community spaces, number of apprenticeships supported, number of families accommodated in affordable housing or long-term NHS beds freed up. These metrics will vary depending on the property type but progress against specific metrics will be assessed and reported an annual basis by an external specialist consultant.

Nationwide issue, but one that can be tackled

The government’s data show that deprivation is a nationwide issue and not confined to certain cities, or regions. The most deprived areas are scattered across the UK. Furthermore, while many of the most deprived areas have deep-seated problems, they are not insurmountable. Although success will not happen overnight, it is possible to reduce deprivation by working with local stakeholders and investing in new buildings and infrastructure. Not only will that improve people’s opportunities and quality of life, but from the government’s perspective, it should also help to reduce spending on the NHS, policing and welfare payments.

  1. ONS English (2019), Northern Ireland (2017), Wales (2019), Scotland (2020) Indices of Deprivation.
  2. English Atlas of Inequality. Nuffield Foundation and the University of Sheffield.
  3. 63% of secondary schools in the 20% most deprived areas require improvement according to Ofsted, compared with 39% nationally and 26% in the least deprived areas. 2020.
  4. Health state life expectancies by national deprivation deciles, England. ONS. April 2022.
  5. The English Indices of Deprivation 2019 covers 32,844 neighbourhoods, but boundary changes mean that not all of them were also in the 2010 analysis.
  6. The greater level of movement across deciles 2-9 indicates that distribution of deprivation scores is more tightly packed in the middle than at either end.

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Mark Callender
Head of Real Estate Research
Christopher Santer
Fund Manager, Positive Impact Investment, Real Estate, Schroders Capital


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