I chaired a panel at the Prosperity UK conference in London earlier this week. The subject was the UK’s intellectual property (IP), how we exploit it now (pretty well, by the way) and how we can continue to do so post-Brexit. We spoke of tax incentives; the availability of the finance needed to take a firm all the way to a listing; the need to treat our historical infrastructure as an asset rather than a liability; and the thrill that we all get from the fact that the young now aspire more to work for exciting small companies than they do for big investment banks.
And, of course, we talked about house prices. What, you might ask, has that got to do with turning smart ideas developed at the UK’s top universities into viable businesses, or with the super-successful fintech industry in London? Everything. As one of my panellists – Peter Davies, the chair of Oxford Sciences Innovation – pointed out, if academics can’t afford to live in Oxford, where the average house price is now more than 11 times average earnings, how can they have their good ideas in Oxford? And if the founders of fintech start-ups have to share bunk beds with their colleagues to launch in London, why would they keep doing it – however good the long-term tax incentives might be?
Why indeed. With this in mind, there is good news: London house prices now appear to have peaked. The number of unsold new houses under construction in London has hit a new record of 27,000. Asking prices saw the largest drop in eight years this month: if you are looking for a five-bedroom house you will find that the starting price for negotiation is more than 7% below where it was this time last year, according to Rightmove.
And anyone in any doubt as to what is going on need only turn to the words of the chief executive of the Grosvenor Group, which owns much of Belgravia and Mayfair. Commenting on the fact that the group’s total returns from UK and Irish operations fall to 0.3% last year (after six years of annual returns of more than 10%), he said this: “Central-bank policies around the world have resulted in property and other heavy assets rising steeply in recent years, and that means property is really quite vulnerable to what we think is going to come next in the cycle, which is interest rates rising.”
So here you have it. Cheap credit has driven up house prices (see this week’s investing in property page to see how cheaply you can still get a mortgage!). It has now taken them as far as it can: demand is stagnant (net new buyer enquiries are around zero) and – in the words of Capital Economics – “prices have exhausted their ability to continue rising more rapidly than incomes”. Good news for start-up chiefs and creative academics. Good news for IP development. Good news for all of us.