Playing in the premier league

London's prime residential markets are shaped by its position as a centre of global commerce.

2 July 2014, words by Yolande Barnes

 

Prime London house prices have grown, in real (inflation adjusted) terms, by an average of 4.9% per annum since 1979. Average UK house prices by the same measure, have grown by 2.9% per annum. A £100,000 UK property purchased in 1979 would today be worth £800,000. The same property in prime London would be worth £2 million. This out-performance of prime London can be put down to many factors, but it has left London house prices looking full by national standards at a time when housing is very high on the political agenda.

We believe the primary cause of London’s high prices is simple: strong demand for a scarce product. London has changed dramatically since the 1970s, and has been promoted from a national capital to the premier league of global cities. Along with New York, it is one of the most consistently successful cities in the world on a range of measures, economic, cultural and structural.

In common with other world cities, London has seen intense urbanisation. In 1984, the population of London started to grow again after five decades of decline. This population increase has resulted from inward migration as well as natural increase and this has been as much from other regions of the UK as from overseas.

Having said this, the 2011 census shows that 37% of all resident Londoners were born overseas. Projections show that, by 2021, London’s total population is set to rise by another million, the fastest growth rate ever.

During the 1936-84 population decline, London's stock of housing was reduced and since its population resurgence, housing has been undersupplied by at least 25,000 units a year. The cumulative effect has been a supply shortage alongside sudden and, at the time, unexpected growth.

Intense competition for housing has been accompanied by economic growth and increasing prosperity in the city. With money the weapon of choice among those competing for space in the metropolis, it is hardly surprising house price growth has been so strong. This is especially the case in the prime market where affordability is not restricted by mortgage availability.

All this means inevitable price rises, which a London-centric national media broadcasts with alacrity. Coinciding as it has with restricted credit availability, recession, high deposit levels and a consequent lack of access to owner occupation for many, London’s housing crisis is widely reported and high on the political agenda.

London’s high and rising house prices, as well as the exclusion of many young people from owner occupation in the capital, has been blamed on an influx of overseas buyers. We think this is wrong.

Our measures have been for the purchase only of prime property where overseas involvement is higher than in Greater London as a whole. We also measure foreign nationalities but 85% of these overseas buyers live and work in London; they are Londoners. 
 To caricature all overseas purchasers 
as absentee ‘buy-to-leave’ landlords is laughably wrong. London’s housing problems need solutions based on real evidence, not notions that are at best misguided and at worst that border on the xenophobic. We hope that the evidence we present here will help.

 
 

Key Contacts

Yolande Barnes

Yolande Barnes

Director
World Research

Savills Margaret Street

+44 (0) 20 7409 8899

 

Paul Tostevin

Paul Tostevin

Associate Director
World Research

Savills Margaret Street

+44 (0) 20 7016 3883

 

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