London's Still Burning

It seems like everyday the front pages deliver more tails of terror and woe from the property market, usually accompanied by mind-blowing figures from the capital. And true enough, since 2008/2009 and the depths of the financial crisis, the property market has been, shall we say, unsettled. There have been peaks, troughs, boom and bust. Bubbles big and small have built-up, burst, and come to nothing more than sensationalist headlines.

Some of the stories are initially fun. A recent report from The Guardian reported on the derelict mansions on Bishop’s Avenue in North London. This stretch of real estate, known un-affectionately as ‘billionaire’s row’ was voted the second most expensive street in England last year. Yet The Guardian estimates there is over £350 million worth of derelict property on the street, which includes a row of 10 mansions worth an estimated value of £73 million. It is believed the property was bought on behalf of the Saudi royal family, and has sat empty since they were bought in a four-year splurge between 1989 and 1993. The buildings are in a sorry state, with water streaming down the walls of once grand ballrooms while bird skeletons litter the carpet. It all seems unreal, like something from a film, or a different city – London’s version of the derelict neighbourhoods in Detroit. But the laughter starts to dim when you see this report sitting next to news of the so called ‘bedroom tax’ - these mansions contain over 120 vacant bedrooms.

Depending on your position, this news couldn’t have come at a better or worse time. The national housing shortfall – estimated at 100,000 homes a year – is a political hot potato. And Mayor Boris Johnson recently ruffled feathers in Downing Street by stating that taxes should be cranked up on owners who leave their properties vacant. He told investors from the city: “London homes aren’t ... just blocks of bullion in the sky.” He said that owners should live in their homes, or rent them out. David Ireland, the Chief Executive of the Homes from Empty Homes campaign group says in The Guardian article,

“this illustrates everything that is wrong with the London housing market. The high values are being used as an extreme investment vehicle at the expense of homes being homes.”

This, of course, is an extreme case. Bishop’s avenue is not the norm. So what about the properties in the “bottom” end of the market? Where first time buyers are battling it out for a place on the ladder. The Office for National Statistics says the average price of a UK home is £248,000, rising to £441,000 in London. But a closer look at the variation of prices within the capital shows even more interesting news.

Over on the other side of town, away from the green streets of SW6, house prices in the über cool enclave of Hackney are flying. The Land Registry shows prices rose 17% over 12 months, which gives the borough the dubious award of having the biggest price hike, year-on-year, in all of England and Wales. Still riding high following the 2012 Olympics, East London’s renaissance continues in force as buyers priced out of more expensive areas of the capital, are finding homes of equal size and quality in this often derided borough. The average house price in Hackney is £502,000, compared with nationwide average of £176,500. Although Hackney’s prices pale in comparison to the big boys over in Kensington & Chelsea, where the average prices tickle £1.2m. The figures provided by the Land Registry – which are based on completed sales – show that prices in the area increased by 2.6% in December 2013.

These staggering numbers aren’t just appearing in house price listings either. The nationwide figures for first time buyers in December 2013 was up by a gob smacking 82.1 per cent on 2012, with these staggering numbers being attributed to the governments Help to Buy scheme. In the capital the numbers of first time buyers increased by 86.4 per cent. More reassuringly the average mortgage taken out by first-time buyers also rose 13 per cent to £119, 288, showing an apparent rise in confidence of mortgage lenders.

After a disjointed 2013, which saw a steady market, potter along for the first half of the year, before picking up in the summer ahead of a huge increase in sales from October through to late November. All of which has gone to prove that there is huge demand in the first time buyers market, but there’s still a huge shortfall in supply. And this trend looks like it will continue throughout 2014 as confidence among lenders and first time buyers remains high, despite the fact that demand is growing eight times faster than supply.

Which brings us round to the B word. Whispers of another housing bubble are another favourite hobby of gossips and newspapers. But are we in danger? Brik co-founder, Mike Horne, doesn’t think so. “The definition of a bubble is tricky, because people hear the word and think everything’s going to go wrong in six months. And I don’t think that’s necessarily the case.Foreign interest in London is still growing, literally by the second. That particular statistic only seems to being going up. First of all it was the French moving into SW6 for three or four years, then there’s outside investment from Asia and the Middle East. Will that change? No, I don’t think it will. London’s property market still seems like the place to be.”

“The definition of a bubble is tricky, because people hear the word and think everything’s going to go wrong in six months. And I don’t think that’s necessarily the case.”

But while Horne is positive about the future, he doesn’t think we’ll see the kind of explosive growth in the market that singled 2014 out as such an interesting year. “I don’t think we’ll see growth like we saw last year, which was in the region of 15 to 30 per cent at times. I think that we’ll see a more gradual rise of somewhere in the region of 5 to 7 per cent, which is more like a normal year in SW6. Still pretty epic, compared to the rest of the country, but a bubble? I’m not so sure. At the moment we’re at the top of the peak, and I think it will flat-line or rise gradually for the next 18 months.” So there’s no bubble, and certainly no bursting. Unless there’s some kind of cataclysmic financial or physical event that is…fingers crossed, eh?