The future of London's housing market
When the average London house price is nine times the average London income, it doesn‘t take a genius to work out that something has to give. But what? Time Out investigates the state of the market
Merryn Somerset Webb, editor of MoneyWeek, is unequivocal: ‘The short-term future for the London housing market is pretty iffy. It’s inconceivable that prices won’t come down.’
Such words are anathema to most Londoners, after more than ten years of rising prices; it won’t happen here, they say. Which is what people thought 20 years ago, just before a 30 per cent drop in prices; property didn’t regain its 1988 peak until 1998. This time, cheap money due to low interest rates and low inflation, combined with poor housing supply and high confidence encouraged by low unemployment have led people to believe that growth will continue indefinitely. And despite ominous forecasts – Roger Bootle of researchers Capital Economics notes that 24 out of 27 price indicators (everything from repossessions to mortgage approvals) have seen a downturn – that’s still the view of the Chancellor, and of property experts such as CB Richard Ellis Hamptons International, which offers residential advice to companies. It is predicting a 6 per cent increase in London house prices in 2008 ‘as long as the economic fundamentals remain sound’.
So who to trust? ‘In the surreal world of house-price forecasts, most people have an axe to grind, be it financial, reputational or intellectual,’ Patrick Hosking wrote in The Times. Somerset Webb has put her money where her mouth is, selling her house and moving to rented property, and she makes a compelling case, based on the current financial crisis and also on an 18-year property crash cycle that goes back 300 years. ‘London is affected by the same things as the rest of the country,’ she explains. ‘Income, interest rates and the employment conditions of the rich. The financial services industry is in a lot of trouble. Talk to the bankers; they’re not spending a penny.’
Estate agents hope that any drop in prices will allow first-time buyers to get into the market, although with mortgages harder to come by, that may not be the case; and, when prices are on the slide, there’s less incentive to get on the ladder. But faith in the power of the market is a key part of the London make-up. It was ever thus: in Michael Frayn’s 1967 novel ‘Towards The End Of The Morning’ an aspiring London couple find themselves heading further and further out in their bid to get on the ladder. ‘It’s on the Tube, or almost on the Tube,’ they tell each other. ‘It’s an area that’s bound to go up. People have to go somewhere.’
People have to go somewhere. London is growing and must accommodate a further 750,000 people over the next ten years – that’s around 400,000 homes, or a borough a year. A 2002 GLA strategy document stated: ‘London’s population has risen regardless of business cycles… there is no reason to assume that future changes in the economic climate would act as a brake on population growth.’ Assuming that is correct, how will all these people afford to buy if prices don’t drop drastically?
London has a low population density – 78 people per hectare compared with 300 in Paris and 500 in Barcelona – something that planners want to change. According to Prospect magazine, ‘by 2016, Lambeth and Southwark are expected to absorb around 29,000 homes each, while Tower Hamlets will take 41,280. These new homes will almost all be part of medium-rise flat complexes without gardens.’ Is that what Londoners want?
‘There’s a big directive about moving people into London – tempting the middle classes into regenerated areas – but the countervailing trend is suburbanisation,’ says Mark Clapson, who leads the London Studies course at University of Westminster. ‘We’re always told that in suburbia, everybody lives the same lives but people in city centres live in identikit buildings too.’
The bigger problem is that ‘the English don’t like living in the centre of towns,’ he adds. ‘English intellectuals won’t acknowledge that most people want to live in the suburbs. Some of the most passionate proponents of New Urbanism are prejudiced about where they think the action should be.’
In any case, Londoners want family homes, and these are not being built in sufficient numbers centrally. As a result, London is set to spread; we need to adjust our concept of where the city ends. ‘London goes from Milton Keynes to the coast and takes in Reading and Southend with the greenbelt as a big regional doughnut-shaped park in the middle,’ says Martin Crookston, a director at town planner Tribal Urban Studio. ‘London is the entire south-east, with different degrees of intensity of relationship all round the hub.’
The result is a city with low density and a massive spread but none of the polycentricity of a Los Angeles. The key commercial and industrial area is still in the centre, leading to intense strain on infrastructure. One solution is to relocate business from the West End, City and Docklands, but Crookston reckons ‘what central London offers can’t be replaced by dotting it around. Businesses will pay extraordinary rents to stay in the centre.’
But there’s another cost. ‘People are moving through London at a faster rate because it’s a lot harder to live here,’ Crookston says. For example, last year, 20,000 professionals in search of a better work-life balance and cheaper property moved to Leeds (where one in 20 walk to work) from London (where it’s one in 500); and this turnover is accelerating. This is bad news for communities. ‘If you up the rate of churn, you put more pressure on the people who keep things ticking over: the schools, the shops,’ says Crookston.
‘So London needs more public services and gets more expensive to operate. That’s not something the government has taken seriously. Ken’s plan is to let it rip while everyone sits around admiring. There needs to be an attempt to say that these are the costs that go with the sort of London we’ve got. ’
There’s one way of lifting the strain: build on the greenbelt. ‘There’s nothing irrational about building on the greenbelt although Patrick Abercrombie [post-Blitz town planner] would spin in his grave,’ says Clapson. ‘It would mean less commuting for a lot of people. It’s an interesting question: should you just let it go?’
Crookston has also considered the issue. ‘You would have to do it on such a scale you’d remove pretty much all the greenbelt before it made any difference. But politically it’s not on the agenda. People have decided they like growth but they also like the green and pleasant land of southern England. We’re trying to reconcile something that can’t be reconciled.’
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