Insane London Housing Market

[Ealing53]

If anyone wanted an example of how the London housing market goes on its own merry way, here is a real-life example:

In 2010, my wife and I put our 2 bed flat in Ealing up for sale and looked for a 3 bed house. We saw a probate sale on the market for £475k which needed a lot of work (don't all probate sales!) but we didn't mind as it was a project and we were looking for a long term investment. We made an offer of £430k due to the works required which didn't seem that unreasonable given 3 bed houses at the time were going for around the £450k mark, or slightly higher.

Our offer was rejected as a cash buyer turned up and offered slightly more (as informed by the EA). I couldn't do anything about actually having a mortgage and didn't want to increase my offer so I said "pass". For the last two years the house has been undergoing renovation including the addition of an extra bedroom in the loft and was put back on the market in last month for.....in excess of £675k.

So if I knock off say £75k for the extra bedroom, and then say I had offered the original asking price of £475k, plus say £50k worth of work, that's an increase of at least 14% over the last two years in a time when ordinary people find their wages frozen, cost of living increasing, and unable to get mortgages above a 75% LTV (at a push).

Perhaps I should shrug and say "that's life" but it doesn't seem like a tenable situation to have London develop into a land of the wealthy plus their retainers.

[Eddie_George]

In a way, I hope we have hyperinflation. Then London becomes a no-go city as a result of rioting and crime and London houses become worthless to anyone who's used them as an investment.

[catmandu]

If it looks like a bubble it's probably a bubble (or to be more accurate, a bubble on top of a bubble).

[orcocan]

i don't think a property in central london is much more expensive (often cheaper if anything?) than a property in central paris, new york, hong kong or beijing... i don't think it looks like a bubble...

[padington]

i don't think a property in central london is much more expensive (often cheaper if anything?) than a property in central paris, new york, hong kong or beijing... i don't think it looks like a bubble...

It's not a bubble I don't think either, credit lending is quite tight, rather its an example of how capitalism is creating a hideous inequality and becoming extremely divisive. It's what it is, just plain unfair and counter productive but there's no point taxing the hell out of the rich in one country because they will just go to another and that will make you poorer. We need a global socialist common wealth to address the situation. Thats nigh on impossible though so capitalism will just eat itself slowly until there is a revolution, which will fail as all national socialist revolutions eventually do and we'll be back to square one. Best thing you can do is buy the means of production (or property) and defend yourself from a stupid world.

[catmandu]

i don't think a property in central london is much more expensive (often cheaper if anything?) than a property in central paris, new york, hong kong or beijing... i don't think it looks like a bubble...

I'm no expert on the London market having never lived there, but to have a house price boom, a collapse of the economy along with another house price boom, then I get very suspicious that it is unsustainable. The factors which sustain it are real enough, but surely temporary - low IEs, UK being perceived as a safe haven, currency rates etc.

The fact that BoMaD has entered the lexicon is perhaps also a sign that an unsustainable generational shift of wealth has occurred.

Time will tell.

[dangermaus]

lol the trolls really don't even try to hide

[padington]

I'm no expert on the London market having never lived there, but to have a house price boom, a collapse of the economy along with another house price boom, then I get very suspicious that it is unsustainable. The factors which sustain it are real enough, but surely temporary - low IEs, UK being perceived as a safe haven, currency rates etc.

The fact that BoMaD has entered the lexicon is perhaps also a sign that an unsustainable generational shift of wealth has occurred.

Time will tell.

There's no collapse of the London economy though, it's roaring economically. The rich are throwing money around, job prospects are good, shops are coining it in. I walked around Central London for the first time in 10 months and was amazed how much it has changed in less than a year. New sculptures everywhere, buildings tearing up quicker than helicopter pilots can fathom. People are also pouring into London. Every day it's becoming busier. London is in a league of its own, an economy of its own.

[Ealing53]

There's no collapse of the London economy though, it's roaring economically. The rich are throwing money around, job prospects are good, shops are coining it in. I walked around Central London for the first time in 10 months and was amazed how much it has changed in less than a year. New sculptures everywhere, buildings tearing up quicker than helicopter pilots can fathom. People are also pouring into London. Every day it's becoming busier. London is in a league of its own, an economy of its own.

You're right, I work in the East Midlands some of the time and there's a huge difference in how the economies seem to be faring.

I don't think there's a bubble either, I think the ladder has been pulled up from ordinary folk. There's now talk in the Standard of pop-up housing in disused garages in Dalston which to me is the thin end of a wedge. This is presumably how townships and favelas develop.

[padington]

You're right, I work in the East Midlands some of the time and there's a huge difference in how the economies seem to be faring.

I don't think there's a bubble either, I think the ladder has been pulled up from ordinary folk. There's now talk in the Standard of pop-up housing in disused garages in Dalston which to me is the thin end of a wedge. This is presumably how townships and favelas develop.

The trend is the mega city. There about 20 of them in the world and they are sucking everything in. It seems the digital world requires / likes / encourages a critical mass of people in one space rather than spread all over the place. London being a remarkably good investment out of all the mega cities because of tax leniency in capital gains tax, unique links from the empire, Europe, cultural pull, historical pull, liberal bent, safe bet and its English speaking language.

It's a no brainer for the rich , shrewd or those already with family in the area.

[Anna_1980]

it is a mega city, indeed, but with the market artificially supported, and wonder why in the UK if you are a foreigner and not domiciled in the UK, you still pay the same stamp duty?

[padington]

it is a mega city, indeed, but with the market artificially supported, and wonder why in the UK if you are a foreigner and not domiciled in the UK, you still pay the same stamp duty?

I don't get your point ?

[SalK]

I think she's implying you're gay....

[padington]

I think she's implying you're gay....

.... Simce when was 'being gay' an insult outside the playground ?

[Ealing53]

I don't get your point ?

She's asking why investors, particular those from abroad, pay the same as owner-occupiers.

[Starla]

There's no collapse of the London economy though, it's roaring economically. The rich are throwing money around, job prospects are good, shops are coining it in. I walked around Central London for the first time in 10 months and was amazed how much it has changed in less than a year. New sculptures everywhere, buildings tearing up quicker than helicopter pilots can fathom. People are also pouring into London. Every day it's becoming busier. London is in a league of its own, an economy of its own.

Agree. Which is why I'm tending to take less and less notice of what's going on in the rest of the country. I could be reading about The Caymen Islands for all the relevance it has to London.

Ealing - I share your frustration. I'm looking to buy at the end of the year in West London and I was turning my nose up at places while scanning Rightmove a few years ago, only to see them having gone up another 30%. What if, etc etc. It's hard not to think about it without feeling massively hacked off. Sounds like you've remained in a mortaged 2 bed property, could be worse, you could have twattishly STR'd like I did.

[catmandu]

There's no collapse of the London economy though, it's roaring economically. The rich are throwing money around, job prospects are good, shops are coining it in. I walked around Central London for the first time in 10 months and was amazed how much it has changed in less than a year. New sculptures everywhere, buildings tearing up quicker than helicopter pilots can fathom. People are also pouring into London. Every day it's becoming busier. London is in a league of its own, an economy of its own.

That's pretty much a description of how things were in Dublin, Madrid, Tokyo before their particular bubbles popped.

You're right, I work in the East Midlands some of the time and there's a huge difference in how the economies seem to be faring.

I don't think there's a bubble either, I think the ladder has been pulled up from ordinary folk.

I would suggest the two go together - once ordinary people can't participate in the market, things have already gone too far towards being a bubble.

Maybe it is good honest capitalism at its best. I just can't help feeling that the further wage inflation falls behind house prices, the worse the potential problems stored up.

[samtheman]

Maybe it is good honest capitalism at its best. I just can't help feeling that the further wage inflation falls behind house prices, the worse the potential problems stored up.

The potential problems not necessarily being economic. The change could quite easily be social:

The average voter remains white, middle-class and a home owner. When the average voter is just as much a home owner as a renter, that will change the whole balance. By then, people will start demanding rent caps or will vote for politicians who are offering to implement them. Unfortunately, we're no longer in the days of serfdom so those landlords who believe they deserve investment income from their renter folk will get a nasty wake-up call.

[padington]

The potential problems not necessarily being economic. The change could quite easily be social:

The average voter remains white, middle-class and a home owner. When the average voter is just as much a home owner as a renter, that will change the whole balance. By then, people will start demanding rent caps or will vote for politicians who are offering to implement them. Unfortunately, we're no longer in the days of serfdom so those landlords who believe they deserve investment income from their renter folk will get a nasty wake-up call.

They won't demand rent caps as much as pay rises I don't think. The next government will also be trying to seek growth at all costs and won't like the idea of pulling money out of the economy, so they will encourage a cut less spend more mantra ( which goes against the idea of rent caps ). All of which will knock up the price of houses and eventually the price of rents. They may bring in a raft of legislation to protect tenants which will mean that slum landlords will get hit ( and that will all in turn increase the cost of renting).

Might be wrong though, we'll see.

[samtheman]

They won't demand rent caps as much as pay rises I don't think. The next government will also be trying to seek growth at all costs and won't like the idea of pulling money out of the economy, so they will encourage a cut less spend more mantra ( which goes against the idea of rent caps ). All of which will knock up the price of houses and eventually the price of rents. They may bring in a raft of legislation to protect tenants which will mean that slum landlords will get hit ( and that will all in turn increase the cost of renting).

Might be wrong though, we'll see.

Agreed that this all just "speculation". Also, what I was describing would involve a massive cultural shift that simply hasn't happened yet. The general British population is still property-obsessed and views property as investment.

What you describe sounds very likely as every government in the past few decades has been seeking short-term results for political gains. Politicians who advocate moderation and wise investment in the economy (that will bear its fruits in only a decade or two) are no longer listened to no matter where they are in the political spectrum. Can you imagine any party whether they are LibDem, UKIP, Labour or Conservative recommending a sudden surge in higher education spending? Nevermind if all economists were agrethat it would provide a huge boost to the economy 10 years down the line. That won't save their political careers.

Speculation on house prices is a quick win for any consumer spending boost.

However, if/when renting becomes more the norm, I do still expect an inevitable shift. For example, in Northern Europe where property ownership has nowhere near as much social baggage, tenants are much more protected and for this reason, renting is financially more attractive.

Property owners can't have their cake and eat it. We can't expect house prices to simply increase with rental yields following to support BTL. There's a limit to this, like everything involving speculation. If people can't afford the rents, they can't afford the rents and the market will reflect that. We're no longer in the era of serfdom where landlords can demand that their investment returns the money they desire.

You often hear people complain about how speculation deforms prices but they can only deform them temporarily. The intrinsic value of the underlying asset still remains. Buying an asset worth $100 for $200 makes no long-term sense but may make sense if you can find a mug who will buy it for $250 even when the underlying asset remains at $100 but that speculation has had no effect on the intrinsic value.

I find it a bit strange how some people on political shows such as Question Time complain about how their 22-year old son/daughter can't afford a mortgage as if that's some universal norm and that every working 22-year old should be able to afford a mortgage if they so wish. That's just ludicrous, especially in a country that views property as an investment.

In most of continental Europe, parents just want their children to be able to afford their rent with the aspiration of buying property much further down the line when they are most likely to be better off than their peers who chose to buy property as early as possible.

[padington]

Agreed that this all just "speculation". Also, what I was describing would involve a massive cultural shift that simply hasn't happened yet. The general British population is still property-obsessed and views property as investment.

What you describe sounds very likely as every government in the past few decades has been seeking short-term results for political gains. Politicians who advocate moderation and wise investment in the economy (that will bear its fruits in only a decade or two) are no longer listened to no matter where they are in the political spectrum. Can you imagine any party whether they are LibDem, UKIP, Labour or Conservative recommending a sudden surge in higher education spending? Nevermind if all economists were agrethat it would provide a huge boost to the economy 10 years down the line. That won't save their political careers.

Speculation on house prices is a quick win for any consumer spending boost.

However, if/when renting becomes more the norm, I do still expect an inevitable shift. For example, in Northern Europe where property ownership has nowhere near as much social baggage, tenants are much more protected and for this reason, renting is financially more attractive.

Property owners can't have their cake and eat it. We can't expect house prices to simply increase with rental yields following to support BTL. There's a limit to this, like everything involving speculation. If people can't afford the rents, they can't afford the rents and the market will reflect that. We're no longer in the era of serfdom where landlords can demand that their investment returns the money they desire.

You often hear people complain about how speculation deforms prices but they can only deform them temporarily. The intrinsic value of the underlying asset still remains. Buying an asset worth $100 for $200 makes no long-term sense but may make sense if you can find a mug who will buy it for $250 even when the underlying asset remains at $100 but that speculation has had no effect on the intrinsic value.

I find it a bit strange how some people on political shows such as Question Time complain about how their 22-year old son/daughter can't afford a mortgage as if that's some universal norm and that every working 22-year old should be able to afford a mortgage if they so wish. That's just ludicrous, especially in a country that views property as an investment.

In most of continental Europe, parents just want their children to be able to afford their rent with the aspiration of buying property much further down the line when they are most likely to be better off than their peers who chose to buy property as early as possible.

Good point. Regarding London and housing benefit one thing that people are not mentioning is that councils are pulling the rug on single people's getting a council flat. If your homeless now you are increasingly put into private rented accommodation. I work in the homeless sector and its a sweeping change. They've capped housing benefit. Only to increase the numbers getting paid it in private rented accommodation. Which means BTL landlords will actually have more punters on there books. Again it's very short term thinking. What they should have done is build social housing but increase the rent nearer to private prices and allow the country to make the profit on social housing to pay the national debt not private landlords but hey ho.

[islington_n7]

Agreed that this all just "speculation". Also, what I was describing would involve a massive cultural shift that simply hasn't happened yet. The general British population is still property-obsessed and views property as investment.

What you describe sounds very likely as every government in the past few decades has been seeking short-term results for political gains. Politicians who advocate moderation and wise investment in the economy (that will bear its fruits in only a decade or two) are no longer listened to no matter where they are in the political spectrum. Can you imagine any party whether they are LibDem, UKIP, Labour or Conservative recommending a sudden surge in higher education spending? Nevermind if all economists were agrethat it would provide a huge boost to the economy 10 years down the line. That won't save their political careers.

Speculation on house prices is a quick win for any consumer spending boost.

However, if/when renting becomes more the norm, I do still expect an inevitable shift. For example, in Northern Europe where property ownership has nowhere near as much social baggage, tenants are much more protected and for this reason, renting is financially more attractive.

Property owners can't have their cake and eat it. We can't expect house prices to simply increase with rental yields following to support BTL. There's a limit to this, like everything involving speculation. If people can't afford the rents, they can't afford the rents and the market will reflect that. We're no longer in the era of serfdom where landlords can demand that their investment returns the money they desire.

You often hear people complain about how speculation deforms prices but they can only deform them temporarily. The intrinsic value of the underlying asset still remains. Buying an asset worth $100 for $200 makes no long-term sense but may make sense if you can find a mug who will buy it for $250 even when the underlying asset remains at $100 but that speculation has had no effect on the intrinsic value.

I find it a bit strange how some people on political shows such as Question Time complain about how their 22-year old son/daughter can't afford a mortgage as if that's some universal norm and that every working 22-year old should be able to afford a mortgage if they so wish. That's just ludicrous, especially in a country that views property as an investment.

In most of continental Europe, parents just want their children to be able to afford their rent with the aspiration of buying property much further down the line when they are most likely to be better off than their peers who chose to buy property as early as possible.

I'm afraid I can't see the culture of viewing property as an investment changing any time soon in the UK.

I see my flat as a home, but also as an investment - not just financially, but in terms of where I live too.

To be honest, even if there was a massive HPC i wouldn't care if my investment was decimated so long as I could afford to pay the mortgage. This is a much more attractive proposition than renting where there absolutely no rights, freedom or security.....and this is the reason why the culture wont change!

Have already resigned myself to the fact that there is no ladder, I'm stuck in a tiny flat for probably many years to come (having already lived here for 5 years) - however I do feel lucky that I'm not at the mercy of a landlord!

[samtheman]

Of course, property is seen as an investment in most countries: at least, if someone was going to sink half a million pounds plus interest costs into a property, you'd hope that they'd check if the property was worth the price they were paying but over the last few decades in the UK it's been accepted that property will just increase in value, at a rate higher than inflation and salaries and indefinitely. Needless to say that the whole phenomenon has its limits.

By the time the average house costs 7 or 8 times the average salary, to hope for further increases is not feasible or you have to rely on interest from "investors": buy-to-let landlords and foreign investors to keep the prices up. Even then, until you have an area where most ownership is foreign, you still rely on the purchasing power of the average worker.

Even for foreign investors, their investment only makes sense so long as the required rent yields can be met by the rent paid by the average worker.

The safe haven status for foreign money is only applicable for a few SW postcodes where foreign investors are simply realising a self-fulfilling prophecy: they all want to sink their money into the same property at the same time but with no regard for the instrinsic value of what they're purchasing. Of course prices will go up in that context. Outside those postcodes, apart from Singapore and Hong Kong investors, buyers are just looking ridiculously desperate: all the people around me who are owners have had to borrow huge amounts of their deposit from family (for those fortunate enough to have rich parents...) or enter some weird arrangement with a friend or 2 to purchase their flat.

The use of the word "ladder" amuses me too: I've yet to find another European culture outside the UK and Ireland where the concept of a "property ladder" is commonly referred to. The whole concept refers to the same self-fulfilling prophecy: i.e. you must buy a small property because that's the only way you'll ever be able to afford a larger one so naturally the cost of those small properties increases as they're so much in demand.

In Nordic countries, it's actually seen as common sense to save until much later and in all likelihood, if you were wise with your money, you're more likely to be able to afford the large house than the chap who desperately purchased any small property when they were younger and sunk all their money in interest to the bank. But the UK context doesn't allow for that method of thinking.

I'm not expecting a crash soon but even in my area, property has not increased in value for several years. When you take into account inflation, property prices in most of East London have decreased in real terms. This is despite the availability of cheap mortgages and swathes of Singapore investors. It makes you wonder how anyone can really expect house prices to continue increasing significantly without any sudden shift in the UK economy. Where would the increase come from? Even cheaper mortgages? Even more Singaporean investors? Sure, we can otherwise count on the self-fulfilling prophecy: prices increase because investors think they should naturally increase but that's only going to take us so far.

[Ealing53]

To be honest, even if there was a massive HPC i wouldn't care if my investment was decimated so long as I could afford to pay the mortgage. This is a much more attractive proposition than renting where there absolutely no rights, freedom or security.....and this is the reason why the culture wont change!

I think you've hit the nail on the head of why we view home ownership in the country the way we do. Rachmanism was coined in this country after all. While much has changed since then, "landlord-tenant" still has a connotation of serfdom in the UK which is why both parties treat each other badly on occasion. Plus many people still have their memories of student life.

We need a more far-reaching reform of tenancy to make it a viable long-term option, not just something you do when you're in your twenties or as a student. That's what happens in e.g. Germany and that's why those countries don't have ridiculous housing bubbles.

But then given the number of our MPs who are also landlords, that's never going to happen....

[Ealing53]

The potential problems not necessarily being economic. The change could quite easily be social:

The average voter remains white, middle-class and a home owner. When the average voter is just as much a home owner as a renter, that will change the whole balance. By then, people will start demanding rent caps or will vote for politicians who are offering to implement them. Unfortunately, we're no longer in the days of serfdom so those landlords who believe they deserve investment income from their renter folk will get a nasty wake-up call.

That's assuming the average voter is motivated enough to do anything about anything. All it takes is a dancing dog on BGT and people forget to vote.