Overheated London Homes
The surging home prices have sparked concern that the boom is unsustainable. It is ratcheting up pressure to cool the housing market
Rohit Sabhlok was upset he lost a bidding war on a London house. Katy Barnes bought her home to avoid rising rents while Holly Martin purchased hers as an investment. Both are hooked on a website that shows their property values soaring. Kay Durrant used her home’s growing equity value to pay bills.
Welcome to London’s frenzied housing market, where low mortgage rates and a dearth of properties for sale have sent prices rising in a year by an amount almost twice the average annual London wage.
From centuries-old pubs to Mayfair clubs to the halls of Parliament, London is abuzz with talk of escalating values, foreign buyers with piles of piles and half-built garages selling for vast sums.
London’s housing boom “has become a mainstay of conversation,” said Paul Stenson, an asset manager at Dunbar Assets as he sipped a pint of Aspall cider at Ye Olde Cock Tavern on Fleet Street, a pub dating back to 1549. “Never mind the hackneyed view of it being the conversation of dinner parties, it’s gone beyond that. It’s like the elevator music that’s constantly on play.”
Burgeoning demand amid the lack of supply, near record-low borrowing costs, government policies to stoke growth and a cultural obsession with property are among the factors feeding the property craze. Its effects are being felt across the economic spectrum from trophy-home buyers in central London to immigrants seeking shelter on the city’s outskirts to average families using homeownership as a means to a better life. A typical London home now goes for £458,000.
No. 1 Risk
Bank of England Governor Mark Carney called surging home prices the No. 1 risk to the economy and listed possible policy responses, moving a step closer to taking action to rein in housing inflation.
Pressure to get in on the action is mounting as concern grows that London prices will keep climbing. Asking prices rose to a record this month as all 32 of the capital’s boroughs logged increases, property- website operator Rightmove said. Average home values rose by more than £60,000, a 17.7% jump, in the 12 months through February, the most since July 2007, according to the Office for National Statistics. Bidding battles for everything from patches of grass to sprawling man- sions to parking spaces and garages are now commonplace.
When Sabhlok, a 32-year-old management consultant, reached the final stage of bidding for a three-bedroom terraced home in south London’s wealthy Dulwich area, the sellers asked for a letter detailing his background. It didn’t help and he lost out. Bids were already so high that the owners “didn’t care” about making even more money, Sabhlok said.
Prices for first-time buyers reached a record of eight times average earnings in the first three months of 2014, compared with an average of 4.9 times income since 1983, according to mortgage lender Nationwide Building Society. Price gains in a year were almost double the £34,200 median annual income of a full-time London worker. Values are now The low interest rates are sparking demand at a time when building is failing to keep up with London’s population growth. Population growth since 2013 means households and homes are at about the same level for the first time in over 40 years, says Christine Whitehead, a professor at LSE who researches housing. The city is essentially full and “there is nothing left for vacancy or mobility or anything else,” she said. Housing is the biggest challenge facing London, Mayor Boris Johnson said in January. His goal is to get 42,000 homes a year built during the next decade. Johnson foresees a boom in housing construction as part of a solution to the housing shortage. Bolstering the economy outside of London is the only way to reduce the city’s housing crisis because that would tempt Londoners to move away, LSE’s Whitehead said. Otherwise I don’t see an answer.”