The headline is overblown. The article claims prices in London are flat over the past year, and that prices in the UK has a whole rose 3.1%.
"average prices in inner London are down 2.6 percent over the past year, whereas outer areas are up 2.7 percent. That left average prices across the capital little changed."
Agreed - I can understand why there would be concern over lower equities or bond prices - but how are lower real estate prices really a bad thing? Young families are killing themselves trying to earn enough to subsidize the retirement of older homeowners through high real estate prices, mostly because our cites are so badly managed and zoned. Or well managed and cunningly zoned, if you're a Hollywood villain and what you're interested in is destroying a whole generation with debt.
It's bad for investors, which can affect the speed of new builds. Otherwise it's only bad for home ownes if they drop too fast, or if you want to treat your home as an investment and plan on trading down in the future, which is incredibly risky to depend on.
> but how are lower real estate prices really a bad thing?
It depends why they are lower. If they are lower because more houses are being built that could be a good thing because relieving the chronic shortage in affordable housing will help more people get on the property ladder, increase the available labour pool for businesses, if they live closer to work it will ease transport congestion, etc, etc. Good all round.
However if house prices are falling because wages are getting depressed so people can't afford higher prices, the jobs market is slowing, inward investment is petering out, etc then it's not so much that lower house prices themselves are bad, but it's a really bad sign for the economy.
Apart from anything else, falling house prices due to economic factors is going to reduce investment in new housing, which we really do need in the medium to long term.
It seems that the recent price development is due to higher taxes on second homes (and expensive purchases) which deter capital investors. This could be a good thing as it means that a higher share of houses will be owned by people living only in London, instead of second homes.
And even though it only directly effects the most expensive property, it ultimately lowers prices for a lot of houses due to the inelastic nature of housing demand.
High house prices are mainly good when you die. You no longer need a house and your descendents get to convert the house equity into cash (paid for by the younger generation). The rest of the time high house prices just mean larger debt, more risk if prices fall and higher transaction costs.
This assumes that you never sell your house to fund your retirement. High house prices also imply higher real estate taxes, which pressures the older generation to sell.
The UK real estate tax ("council tax") is ridiculously small even at the highest levels. Even if I was in a multi-million pound property, the maximum I'd ever pay would be £3.5K annually, and for most houses it's less than half that.
Things are different depending on locale. Here in the US, retirees living on a fixed income where their house is most of their net worth have it very different from the wealthy in the UK.
London is something of a special case, where (i) property is so expensive it simply isn't accessible to people on average salaries to buy and (ii) property investors are interested in the market for the capital gains rather than the rental income, and so owners aren't necessarily as aggressive at pushing for market rents as they could be. A poor outlook for property prices could potentially result in quite a few tenants finding their landlords squeezing them much harder in future.
More generally, whilst lower property prices are generally a good thing for the economy, a property price crash and the resulting economic instability is unequivocally a bad thing.
Sadly, the geospatial data in the article don't support this. Inner London, the £1m+ mansions, are what are faultering after brexit. Outer London prices are up 2.7% on last December.
Edit: yeah, OK, you can't buy a mansion in zone 1 for £1m. I'm going on my own internal standard, i.e. if it's over £1m it better have turrets.
Don't forget all these charts provide averages across all central London areas - some more real-life examples:
A terraced house in Earls Court cost you about £150-£200k early 1990 - now £1.5M+ - similar in Fulham etc.
A double fronted house in Worlds End (now considered to be part of Chelsea) was about £350-£500k at the same time - now about £4-6M.
Many people working in central London until about 20years ago bought themselves property from bonuses - these properties (first time buyers) were mostly used for self-occupancy - now there are very little bonus payments for younger people working in the City and a large proportion of people working in offices in London commute between 2-4h each day (when the 9-5 becomes 5-9).
Now (since at least 6 years) most property is cash-bought - i.e. no mortgage was taken out. You are looking mostly at "investment buyers" and with these, prices are far more sensitive to changes like the Brexit. Look around in central London and you will realise how much residential property is actually empty - for some of these "investment buyers" it is cheaper (tax) not to rent and the government is not doing anything about this since many years.
Most property development - to my knowledge - is now "to-rent" vs. "to-buy" - what we are seeing is a reversal of policies supporting people (latest Thatcher) to become property owners back to pre-WW2 when only the rich could afford not to rent.
On current central London price level you will have to have best at least £500k cash for a down-payment and then earn at least £200k p.a. to be able to pay your mortgage for a family size property.
I know all about that commute- just paid £5k for my annual season ticket. It it is the only economical way to work in London if you have a family.
In terms of empty property, this is what the Land Value Tax is good for (especially in C London, were most of the house price is for the land). Its a shame the Lib Dems never win general elections.
In general but I'm not sure this movement is that significant, we really need to go on a huge house building spree to solve our housing problems and it doesn't look like this is going to happen, largely because of political ideology.
You could build one or two million houses and solve a lot of problems but you'd also p*ss off a lot of homeowners in the process. It's a no win situation for any political party.
But then again, your economy will get a large boost. Construction is awesome source of growth. No construction means stagnation.
If you don't piss off homeowners today, tomorrow situation will become even more dire. Pricess will be bigger, price growth expectations would be even more insane, regular people will be more disgruntled. So it should really be "piss early, piss often". Or face downward spiral.
It's pretty obvious how this should resolve: suppose there's two nearby towns (inside metro area) - one is building up but another one doesn't. Property prices will lower in both of them but onle one will be getting economic benefits, leading to second one following the suit. It only becomes problematic when cartel forms, blocking the development of entire area. Such cartels should be fought with.
The UK with Brexit has signaled that its not interested in trade or immigration. Why would I as a knowledge worker choose to even remotely consider London? Demand falls, ECON 101.
I'll elaborate (and take advantage of the fact I'm not the original poster). Britain currently thinks it wants trade, but doesn't really understand what modern trade looks like. This is evident both from talking to people in my street and from reading the latest pronouncements of Brexit ministers. A couple of things that they all seem to be missing:
1. Non-tariff barriers are much more onerous than tariff barriers.
2. If poorer country A enters into a deal that gives richer country B jobs, there's a good chance they might want access to those jobs.
3. Britain principally trading with Canada and Australia is a recipe for ruin.
4. A great deal of the UK's attractiveness to non-EU countries is its membership of the EU.
3, especially, sounds like I'm straw-manning. I'm not.
I should add there are Leavers who appear to get these issues. One is Phil Hammond, but it's unclear he'll win and
5. The EU can walk away from any deal at any time and probably will if we don't offer them something good on their terms.
Point 5 is really significant, there has been a lot of noise from politicians on both sides and the media about the negotiations, in reality we have such a weak hand it looks like the negotiation is going to be rather one sided.
Especially since the EU has every motivation to make sure that they get the much better end of the bargain. If it looks like the UK has 'won' in any way by Brexiting, other countries are more likely to follow suit. Crushing them at the negotiating table likely makes the rest of the EU more stable, and probably wealthier.
From talking to brits, there seems to be this idea that the UK is pulling Europe along. Europe is just a dead weight pulling them back. I shit you not. I think this is why so many brexiters believe that in the negotiations the UK has the upper hand.
Point 1 is unfortunately a symptom of the fact the non-tariff barriers which really are most significant to trade (recognised standards for goods and services, financial/legal passporting) were both co-opted by the Leave campaign to make puerile populist arguments about the evils of the EU ("they make stupid rules about bananas", "they are the wealthy elites")...
That's like saying if Canada doesn't try to join the EU it doesn't understand what trade looks like.
Yeah, actually, you can do trade and do it successfully without tying all treaties together into a political state-building project. Everywhere else in the world manages this pretty successfully.
No, because CETA shows an awareness of these issues:
1) It's got a lot of stuff about non-tariff barriers in it.
2) Doesn't really apply, because Canada is heavily pro-immigration anyway.
3) Remains true
4) Remains true
and 5) Is also a problem for CETA.
Bear in mind also that CETA is a _much_ more limited trade deal than we have with the EU.
So, you're right in that there is a theoretical position that the UK could take which was pro-trade and anti-EU, but it would be a light-year away from the briefings of the Three Brexiteers right now.
Hardly: CETA doesn't affect immigration and is pretty similar to the sort of trade deal the UK might want. The "single market" isn't as impressive as people like to make out. It's primarily oriented towards trade in goods i.e. what Germany wants and progress on trade in services i.e. what the UK wants has been very slow and sometimes goes backwards. The EU has made selling software or any digital items over the internet to EU member countries vastly harder than it used to be: it's actually easier to sell into the EU over the internet from outside it, which is madness.
Please don't make the mistake of thinking that everyone in the UK thinks this way. The country is very sharply divided down the middle about open vs closed. In London, the majority want free movement of people, goods and services, and realize that Brexit (even "soft") is going to be a catastrophe.
I would like to believe that, but it doesn't seem to be supported by the data. Voting intention for the Tories seems higher than ever, Tories + UKIP are well over 50%.
Political parties' opinion polling is probably the least reliable way of gauging this, since the Conservative party is at least notionally very pro-business, was divided on the issue of Brexit and its Leave faction made numerous claims that leaving would benefit trade with the wider world, and (outside Scotland) the major opposition parties have been in total disarray for the last couple of years for unrelated reasons.
More reliable indications would be that 48% of people voted Remain, and a non-trivial percentage of those that voted Leave did so because they believed claims that disengaging from the EU would allow the UK to pursue more free trade arrangements than before.
Wow, for a knowledge worker that's not a very good grasp of nuance.
The UK has signalled it's not interested in unlimited, no questions asked immigration and actually would rather like to keep the trade as much as possible. That is very far from "no trade or immigration at all".
So hey, go ahead and don't consider London because you think it's suddenly a hermit hole. I doubt the country will suffer from missing such insight.
Price vs. wages is a great measure of day-to-day strain on the average Londoner.
On Housing in General:
It will be interesting to read about the outcome of these last two housing booms on retirement and inequality. Have home owners who entered the market late inadvertently been forced to save? Will inequality spread so wide, that we permanently lock out a portion of the population from urban areas?
I live in Zone 2, on what was a really hot road until June. There's a guy down the road having real trouble shifting his house, but he voted for Brexit so I can't feel too bad for him.
Two houses on our street (outer London) were up for sale. The first sold for an astronomical amount of money just before Brexit. The second was under offer at the same time, also for silly money, but the sale didn't complete before Brexit. The offer was withdrawn by the buyer, and the second house is now (6 months later) still on the market.
The lesson I take from this anecdata is that the market has slowed right down, but sellers haven't yet needed to accept lower prices.
Yeah, you can't read too much into it, but consider the following: to buy a Zone 2 house in London right now requires a fair bit of money. We're talking typically more than $1m US. Even a flat on my street is upwards of 600,000 US. So who can buy this kind of property? That mostly means successful professionals. A fair few of this category are either foreign-born themselves or have spent significant time overseas. Nearly all of them work in extremely international offices. This category skews Remain extremely strongly. Remainers are, for the most part, pretty chary about England's prospects right now.
The broader data shows Outer London still going up, but Outer London's a huge place. Areas like Sidcup and Plumstead skew Leave and I'm sure property prices are still doing fine right now. Longer term, it'll depend on what happens, but I do think property prices are literally skewing on the basis of the political views of the prospective buyers right now.
Well, an awful lot of Brexit appears to be anti-immigration. And the anti-immigration stance is principally values-driven. The kind of people who choose to spend their time around immigrants or being an immigrant themselves seem unlikely to be the kind of people who object to immigration.
There are other arguments, but this was a big one, and it's one that has less traction in those categories.
My (London) mortgage is up for renewal next month. Would it be a good idea to free up some equity while valuations are high in order to invest in the next year or two?
Regardless of the answer to that, your question appears to boil down to "what will be the future value of asset X, compared to asset Y". And not many people can accurately answer that question.
I fully expect this trend to continue, and even possibly accelerate in to 2017.
London has a real problem with wealthy foreign investors parking money in London property; often, they don't even rent these out, leaving them empty. The new mayor, Sadiq Khan, has ordered the LSE (London School of Economics) to conduct a review in to this problem. I expect this to hit the confidence of investors (both foreign and domestic) using London property as a place to park money, and if it's as widespread as I think it is, prices will continue to decline as this "investment" disappears.
This is fantastic news for young people who live and work in London and want to get on the property ladder; not so great news for the property developers who've been exclusively building luxury apartments that nobody can realistically afford - but I have trouble sympathising with them.
It's affecting the top end of the market, but there's still a huge disparity between supply/demand at the lower end of the market that won't go away unless demand subsides (everyone leaves post-Brexit) or much more cheaper accommodation is built.
I'm no economist, but prices in the top end of the market come down, making it more affordable, wouldn't this ease demand at the lower end of the market (as more people will be able to afford the higher-end properties)?
I'm not convinced that Brexit will see the reduction in immigration that people seem to be hoping for; a "soft" Brexit is looking more and more likely.
Yes, but remember that the distribution of wealth (and related things like housing stock/demand) are heavily skewed towards the bottom-end. More availability higher up will ease demand lower down, but proportionally much less.
From my analysis of London super prime ( I use two groupings £5-10m, £10m+ ), it appears that there is such a disconnect between this group and the "normal" London housing market, that they may as well be different countries.
In some sections of the housing market, lets say £1m, a devaluation appears to have a significant effect on properties beneath that valuation. The correlation is extremely high. In this bracket of buyers you have (well off) working professionals, lawyers, finance etc. Rich by almost everyones standards. Lots of them around means lots of competition for a certain stock of housing.
What you also have is high thousands of extremely rich people from around the world (particularly Russia, Saudi and other ME). London is a refuge for super high net worth individuals for a variety of reasons, culture, relative freedom, history, availability of beautiful mansions. The most important reasons probably being national stability (financial and security) as well as a comprehensive and enforced legal system. Not to mention, a subset of these buyers are parking money stolen from the people of their country. Try physically confiscating a 250 year old Mayfair townhouse! UK legal protections means a seizure of the property is unlikely/very difficult.
The property desired by this group as so disconnected from usual London housing that it is unlikely to have knock on effects if prices decline. This type of person is not going to downsize to 'normal' housing.
This is just something to bear in mind when reading reports on London property prices declining. The last year saw a single digit percentage drop in asking prices, except the majority of this was in the £10m+ plus range.
£1m is the price of what would elsewhere be considered a normal sized 'house'. You can't get anything with two bedrooms for less than £500,000. £1m is a good metric for London property.
Agree with the last two points. The first however is an understatement. Outside London ( and commute belt ), £1m buys you a seriously luxurious house. Even in major, desirable cities like Edinburgh, £1m buys you a 6 bed, granite, Georgian townhouse in the absolute best spot in the city.
The average London home now costs £526,000 - 16 times the average Londoner’s salary of £33,000 a year. Long term I have no future in London, despite living there almost all my life.
Source: https://www.housing.org.uk/resource-library/browse/home-trut...
I would be overjoyed if house prices in London came down, and I say that as someone who bought a house a few years ago and should be interested in the value going up. London house prices are beyond stupid and the situation where foreign investors are allowed to come in and buy out entire towers of flats (no kidding) and take them out of the local market is just criminal.
However, I just don't see it happening based on the data provided. Yes, the luxury central London properties may come down in price but they are still so far outside the price range of almost anyone that it doesn't make a difference. And the article specifically mentiones that the target market for those are foreign investors, not normal people.
Anecdotal evidence, but when my parents bought a house in SW London many years ago we asked the estate agent and apparently even during the crash in the 80s the price dropped by maximum 25% in that area (compared with 200% for example in other parts of the country).
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[ 3.3 ms ] story [ 128 ms ] thread"average prices in inner London are down 2.6 percent over the past year, whereas outer areas are up 2.7 percent. That left average prices across the capital little changed."
It depends why they are lower. If they are lower because more houses are being built that could be a good thing because relieving the chronic shortage in affordable housing will help more people get on the property ladder, increase the available labour pool for businesses, if they live closer to work it will ease transport congestion, etc, etc. Good all round.
However if house prices are falling because wages are getting depressed so people can't afford higher prices, the jobs market is slowing, inward investment is petering out, etc then it's not so much that lower house prices themselves are bad, but it's a really bad sign for the economy.
Apart from anything else, falling house prices due to economic factors is going to reduce investment in new housing, which we really do need in the medium to long term.
And even though it only directly effects the most expensive property, it ultimately lowers prices for a lot of houses due to the inelastic nature of housing demand.
More generally, whilst lower property prices are generally a good thing for the economy, a property price crash and the resulting economic instability is unequivocally a bad thing.
Edit: yeah, OK, you can't buy a mansion in zone 1 for £1m. I'm going on my own internal standard, i.e. if it's over £1m it better have turrets.
1 Million will buy you a 3 bedroom flat in Zone 1.
Don't forget all these charts provide averages across all central London areas - some more real-life examples:
A terraced house in Earls Court cost you about £150-£200k early 1990 - now £1.5M+ - similar in Fulham etc.
A double fronted house in Worlds End (now considered to be part of Chelsea) was about £350-£500k at the same time - now about £4-6M.
Many people working in central London until about 20years ago bought themselves property from bonuses - these properties (first time buyers) were mostly used for self-occupancy - now there are very little bonus payments for younger people working in the City and a large proportion of people working in offices in London commute between 2-4h each day (when the 9-5 becomes 5-9).
Now (since at least 6 years) most property is cash-bought - i.e. no mortgage was taken out. You are looking mostly at "investment buyers" and with these, prices are far more sensitive to changes like the Brexit. Look around in central London and you will realise how much residential property is actually empty - for some of these "investment buyers" it is cheaper (tax) not to rent and the government is not doing anything about this since many years.
Most property development - to my knowledge - is now "to-rent" vs. "to-buy" - what we are seeing is a reversal of policies supporting people (latest Thatcher) to become property owners back to pre-WW2 when only the rich could afford not to rent.
On current central London price level you will have to have best at least £500k cash for a down-payment and then earn at least £200k p.a. to be able to pay your mortgage for a family size property.
In terms of empty property, this is what the Land Value Tax is good for (especially in C London, were most of the house price is for the land). Its a shame the Lib Dems never win general elections.
But back in 1990 interest rates were a whopping 14% - that means that a 25 year mortage would have cost the equivelent of £4935 each month.
Today that house is worth 1.5 million. The same 25 year mortgage at today's interest rates would be £5158 a month.
So really house prices haven't changed that much, it's just that the money is going to different places.
If you don't piss off homeowners today, tomorrow situation will become even more dire. Pricess will be bigger, price growth expectations would be even more insane, regular people will be more disgruntled. So it should really be "piss early, piss often". Or face downward spiral.
It's pretty obvious how this should resolve: suppose there's two nearby towns (inside metro area) - one is building up but another one doesn't. Property prices will lower in both of them but onle one will be getting economic benefits, leading to second one following the suit. It only becomes problematic when cartel forms, blocking the development of entire area. Such cartels should be fought with.
Could you elaborate? This statement is very broad and seems unlikely to be true.
1. Non-tariff barriers are much more onerous than tariff barriers. 2. If poorer country A enters into a deal that gives richer country B jobs, there's a good chance they might want access to those jobs. 3. Britain principally trading with Canada and Australia is a recipe for ruin. 4. A great deal of the UK's attractiveness to non-EU countries is its membership of the EU.
3, especially, sounds like I'm straw-manning. I'm not.
I should add there are Leavers who appear to get these issues. One is Phil Hammond, but it's unclear he'll win and
5. The EU can walk away from any deal at any time and probably will if we don't offer them something good on their terms.
From talking to brits, there seems to be this idea that the UK is pulling Europe along. Europe is just a dead weight pulling them back. I shit you not. I think this is why so many brexiters believe that in the negotiations the UK has the upper hand.
Yeah, actually, you can do trade and do it successfully without tying all treaties together into a political state-building project. Everywhere else in the world manages this pretty successfully.
1) It's got a lot of stuff about non-tariff barriers in it. 2) Doesn't really apply, because Canada is heavily pro-immigration anyway. 3) Remains true 4) Remains true and 5) Is also a problem for CETA.
Bear in mind also that CETA is a _much_ more limited trade deal than we have with the EU.
So, you're right in that there is a theoretical position that the UK could take which was pro-trade and anti-EU, but it would be a light-year away from the briefings of the Three Brexiteers right now.
https://en.wikipedia.org/wiki/Opinion_polling_for_the_next_U...
More reliable indications would be that 48% of people voted Remain, and a non-trivial percentage of those that voted Leave did so because they believed claims that disengaging from the EU would allow the UK to pursue more free trade arrangements than before.
The UK has signalled it's not interested in unlimited, no questions asked immigration and actually would rather like to keep the trade as much as possible. That is very far from "no trade or immigration at all".
So hey, go ahead and don't consider London because you think it's suddenly a hermit hole. I doubt the country will suffer from missing such insight.
http://www.telegraph.co.uk/property/house-prices/the-state-o...
Price vs. wages is a great measure of day-to-day strain on the average Londoner.
On Housing in General: It will be interesting to read about the outcome of these last two housing booms on retirement and inequality. Have home owners who entered the market late inadvertently been forced to save? Will inequality spread so wide, that we permanently lock out a portion of the population from urban areas?
The lesson I take from this anecdata is that the market has slowed right down, but sellers haven't yet needed to accept lower prices.
The broader data shows Outer London still going up, but Outer London's a huge place. Areas like Sidcup and Plumstead skew Leave and I'm sure property prices are still doing fine right now. Longer term, it'll depend on what happens, but I do think property prices are literally skewing on the basis of the political views of the prospective buyers right now.
Why would "spent[ing] significant time overseas" or "work[ing] in extremely international offices" affect which way you vote?
There are other arguments, but this was a big one, and it's one that has less traction in those categories.
Regardless of the answer to that, your question appears to boil down to "what will be the future value of asset X, compared to asset Y". And not many people can accurately answer that question.
London has a real problem with wealthy foreign investors parking money in London property; often, they don't even rent these out, leaving them empty. The new mayor, Sadiq Khan, has ordered the LSE (London School of Economics) to conduct a review in to this problem. I expect this to hit the confidence of investors (both foreign and domestic) using London property as a place to park money, and if it's as widespread as I think it is, prices will continue to decline as this "investment" disappears.
This is fantastic news for young people who live and work in London and want to get on the property ladder; not so great news for the property developers who've been exclusively building luxury apartments that nobody can realistically afford - but I have trouble sympathising with them.
I'm not convinced that Brexit will see the reduction in immigration that people seem to be hoping for; a "soft" Brexit is looking more and more likely.
In some sections of the housing market, lets say £1m, a devaluation appears to have a significant effect on properties beneath that valuation. The correlation is extremely high. In this bracket of buyers you have (well off) working professionals, lawyers, finance etc. Rich by almost everyones standards. Lots of them around means lots of competition for a certain stock of housing.
What you also have is high thousands of extremely rich people from around the world (particularly Russia, Saudi and other ME). London is a refuge for super high net worth individuals for a variety of reasons, culture, relative freedom, history, availability of beautiful mansions. The most important reasons probably being national stability (financial and security) as well as a comprehensive and enforced legal system. Not to mention, a subset of these buyers are parking money stolen from the people of their country. Try physically confiscating a 250 year old Mayfair townhouse! UK legal protections means a seizure of the property is unlikely/very difficult.
The property desired by this group as so disconnected from usual London housing that it is unlikely to have knock on effects if prices decline. This type of person is not going to downsize to 'normal' housing.
This is just something to bear in mind when reading reports on London property prices declining. The last year saw a single digit percentage drop in asking prices, except the majority of this was in the £10m+ plus range.
London prices are seriously crazy.
However, I just don't see it happening based on the data provided. Yes, the luxury central London properties may come down in price but they are still so far outside the price range of almost anyone that it doesn't make a difference. And the article specifically mentiones that the target market for those are foreign investors, not normal people.
Anecdotal evidence, but when my parents bought a house in SW London many years ago we asked the estate agent and apparently even during the crash in the 80s the price dropped by maximum 25% in that area (compared with 200% for example in other parts of the country).