Central London home shortage going to end
Wednesday, 26 December 2007
Chris Hamnett
London's soaring house prices are of perennial interest. Over the past year that interest has been reignited because of the impact of City bonuses and wealthy foreign buyers who have driven prices higher at the top end in large parts of central London. In Kensington and Chelsea, prices are nearly 30 per cent higher than a year ago. Other central boroughs have had rises of more than 20 per cent. Prices in London as a whole are up 16 per cent.
With average property prices in Kensington and Chelsea in September reaching £800,000 it has been suggested that the top end of the market has become semi-detached. There are also fears that London prices have become totally unsustainable and must fall.
But focusing on changes over the past year does not allow us to get a picture of the longer-term changes. Fortunately, the Land Registry data on London boroughs go back to 1995, the low point of the house price slump. It is therefore possible to see what the long-term patterns have been. The results suggest that the top and bottom ends of the market are more closely connected than might appear at first glance.
Starting with the big picture, average prices in London (for all types of property) were just under £100,000 in June 1995. In September 2007 they stood at £350,000: a rise of 255 per cent. As ever, the best time to buy was in the depths of the slump.
More than a decade ago Kensington and Chelsea was the most expensive borough, with prices averaging £219,000, followed by Westminster, Camden, Richmond, Hammersmith and Fulham and Islington (where the average was £119,000). What is interesting is that these six boroughs top the price charts in exactly the same order in 2007, although for potential buyers the prices are depressingly much higher.
Down at the other end of the house price hierarchy in 1995 were the suburban boroughs. Languishing at the bottom of this list were Barking and Newham, at £50,000. In 2007 they are still at the bottom, but with average prices of £239,000 and £237,000 respectively.
So what has happened during the past 12 years? It would be easy to conclude nothing much has changed apart from big absolute and percentage rises all round. The top boroughs in 1995 are still at the top and the bottom ones at the bottom. But that conclusion would be a mistake as the low-priced east London tail has largely disappeared.
The clue to the shift that has occurred can be found in the percentage change in prices over the period. Kensington and Chelsea had an increase of 266 per cent and Westminster of 211 per cent, but the highest change in prices came in the east London boroughs of Hackney, Newham, Barking and Waltham Forest. All four had increases of 370-390 per cent.
What has happened is a remarkable catching-up process by the boroughs at the bottom. Kensington and Chelsea, Westminster and Camden are still at the top (and they are likely to remain there) and Newham and Barking are still at the bottom. Yet the size of the gap between top and bottom has narrowed, in proportionate if not in absolute terms.
Why has this happened? It is impossible to give a conclusive answer but my interpretation is that it is a result of the displacement of demand outwards from the most expensive areas towards the cheaper and more affordable areas. Those people who would like to buy in Kensington and Chelsea but cannot afford to have bought in Islington and Hammersmith. Those who cannot afford Islington have bought in Hackney. Those who cannot afford Hackney have bought in Newham, and so on.
In the past 10-15 years we have also seen the revaluation of east London, aided by the success of Canary Wharf. In addition, the rapid growth of ethnic minority groups in east London has led to an increasing demand in those boroughs. So, in the past 12 years it has not just been business as usual in the London market. The wealthy are forcing up prices in Kensington and Chelsea to astronomic levels, but in the process they have helped to force up prices even more in the less expensive boroughs. This brings problems of decreasing affordability. Ten years ago, it was possible for low-income households to buy in Newham or Barking. Today, this is far less possible.
One positive side-effect of the credit squeeze may be that if high-income buyers hold off purchases, this could weaken displaced demand and moderate price rises at the bottom. East London might even become affordable once more. City pain may be poorer Londoners' gain.
The writer is professor of geography at King's College London
...................................................................
Under syndication arrangement with FE
London's soaring house prices are of perennial interest. Over the past year that interest has been reignited because of the impact of City bonuses and wealthy foreign buyers who have driven prices higher at the top end in large parts of central London. In Kensington and Chelsea, prices are nearly 30 per cent higher than a year ago. Other central boroughs have had rises of more than 20 per cent. Prices in London as a whole are up 16 per cent.
With average property prices in Kensington and Chelsea in September reaching £800,000 it has been suggested that the top end of the market has become semi-detached. There are also fears that London prices have become totally unsustainable and must fall.
But focusing on changes over the past year does not allow us to get a picture of the longer-term changes. Fortunately, the Land Registry data on London boroughs go back to 1995, the low point of the house price slump. It is therefore possible to see what the long-term patterns have been. The results suggest that the top and bottom ends of the market are more closely connected than might appear at first glance.
Starting with the big picture, average prices in London (for all types of property) were just under £100,000 in June 1995. In September 2007 they stood at £350,000: a rise of 255 per cent. As ever, the best time to buy was in the depths of the slump.
More than a decade ago Kensington and Chelsea was the most expensive borough, with prices averaging £219,000, followed by Westminster, Camden, Richmond, Hammersmith and Fulham and Islington (where the average was £119,000). What is interesting is that these six boroughs top the price charts in exactly the same order in 2007, although for potential buyers the prices are depressingly much higher.
Down at the other end of the house price hierarchy in 1995 were the suburban boroughs. Languishing at the bottom of this list were Barking and Newham, at £50,000. In 2007 they are still at the bottom, but with average prices of £239,000 and £237,000 respectively.
So what has happened during the past 12 years? It would be easy to conclude nothing much has changed apart from big absolute and percentage rises all round. The top boroughs in 1995 are still at the top and the bottom ones at the bottom. But that conclusion would be a mistake as the low-priced east London tail has largely disappeared.
The clue to the shift that has occurred can be found in the percentage change in prices over the period. Kensington and Chelsea had an increase of 266 per cent and Westminster of 211 per cent, but the highest change in prices came in the east London boroughs of Hackney, Newham, Barking and Waltham Forest. All four had increases of 370-390 per cent.
What has happened is a remarkable catching-up process by the boroughs at the bottom. Kensington and Chelsea, Westminster and Camden are still at the top (and they are likely to remain there) and Newham and Barking are still at the bottom. Yet the size of the gap between top and bottom has narrowed, in proportionate if not in absolute terms.
Why has this happened? It is impossible to give a conclusive answer but my interpretation is that it is a result of the displacement of demand outwards from the most expensive areas towards the cheaper and more affordable areas. Those people who would like to buy in Kensington and Chelsea but cannot afford to have bought in Islington and Hammersmith. Those who cannot afford Islington have bought in Hackney. Those who cannot afford Hackney have bought in Newham, and so on.
In the past 10-15 years we have also seen the revaluation of east London, aided by the success of Canary Wharf. In addition, the rapid growth of ethnic minority groups in east London has led to an increasing demand in those boroughs. So, in the past 12 years it has not just been business as usual in the London market. The wealthy are forcing up prices in Kensington and Chelsea to astronomic levels, but in the process they have helped to force up prices even more in the less expensive boroughs. This brings problems of decreasing affordability. Ten years ago, it was possible for low-income households to buy in Newham or Barking. Today, this is far less possible.
One positive side-effect of the credit squeeze may be that if high-income buyers hold off purchases, this could weaken displaced demand and moderate price rises at the bottom. East London might even become affordable once more. City pain may be poorer Londoners' gain.
The writer is professor of geography at King's College London
...................................................................
Under syndication arrangement with FE