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

The Economic Times - - World View - Neil Cal­lanan & Patrick Gower

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.

Record Prices

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.”

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