Central London. Wouldn’t you like to live there? Well, you can’t. As Eleanor Mills points out in the Sunday Times, “the heart of London is fast becoming the realm of the super-rich”. Ordinary families – or even families the rest of us reckon are pretty rich, just don’t get to live there any more. They’ve been priced out by some home-grown rich people, but mostly by “rich foreigners colonising London”.
Huge rises in prices have meant that while some of the middling classes (teachers, some civil servants, middle management, small businessmen, journalists, etc) hang on while their children are tiny and they can cope with no space, in the end they mostly give up. That’s why the end of the summer term sees moving vans arriving in streets all over London – normal people are packing up and shipping out, leaving behind them a “patchwork of the fabulously rich and the seriously poor”. A “dead dark zone”.
This matters, says Mills. It matters for London, which is fast losing its “social glue”, and it matters for communities outside London as the London refugees price them out of their towns. The golden spot for commuting used to be within an hour’s commute of London. Now people are “increasingly commuting from as far afield as York or Frome; Norwich or Hereford”.
I’m entirely with Mills in her view that we charge wealthy outsiders too little for their use of our biggest city – our non-doms park their money safely with us, yet we charge them only tiny amounts to use “our political stability, the rule of law, our infrastructure, our good top schools and healthcare”. I’ve written about this before here. But how much longer can prices in London keep up this pace – regardless of the wants and needs of the world’s rich? Already, prices are 5% above their 2007 peak, and in some prime areas, much, much more – the prices of properties over £10m are up nearly 40% in sterling terms. It seems unsustainable.
The good news it that maybe it is. There has been some talk of rents flattening out. I saw one article over the weekend pointing out that basement digouts aren’t making financial sense any more. And the FT reports that the prices of £10m-plus houses are starting to decline “as buyers seek more value.” This could just be down to a summer lull, it could be about the ongoing mansion tax rumblings, or it could actually be down to the fact that prices for trophy homes are “simply too high”.
There is a much-held view that the prime central London (PCL) market stands independent to other markets; it is a special case. But, according to the analysts at Fathom Consulting, this just isn’t true.
Instead, there is “a stable relationship between PCL property prices, UK prices more generally and a relatively small set of macro-economic and financial market drivers”. Think global equity prices, the exchange rate and the extent of safe-haven flows into sterling assets.
Look at this relationship, and PCL, while not in an extreme bubble, is now looking “somewhat stretched”, and so “vulnerable to a correction”. So, what might make it happen?
Fathom used to think it would be the collapse of the euro. But today it puts the top risk as a “premature” end to quantitative easing (QE) which slows the US recovery (perhaps returning it to recession), something which has knock on effects on the price of many assets including “ultimately, PCL property”. The other possibility, of course, is that QE is withdrawn gracefully and peacefully, and that in time, house prices across the UK rise to meet the faster rise in PCL prices. Job done. Fathom thinks this is very possible. We have our doubts.
You can read the Fathom report here.