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Sancho Panza

House Prices: Gap Between London And The Rest Of The Uk 'widest In 40 Years

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Telegraph 2/4/14

'London property now costs 100pc more than property elsewhere in Britain. In pounds and pence the difference in price between the average home in and outside London is now £183,000, according to data from the UK's largest building society. The gulf has never been as great since detailed data began to be collated in the late 1970s. Although London prices have always been at a premium, in that initial period - between 1978 and 1984 - the gap between the capital and elsewhere was less than ten per cent.

And in the housing slump of the early 1990s, London lost its edge as the premuim between prices in the capital and elsewhere dropped again to around 10pc.

Only from the early 2000s did London prices truly detach from those elsewhere, in a trend which accelerated sharply in the years since the banking collapses of 2008-2009, and the financial and eurozone crises.

The figures emerge in the latest index from Nationwide, the building society, the provider of one of the most authoritative price indices.

Nationwide's latest data said London prices were up 18pc on a year ealier, around twice the rate of inflation experienced in the wider market.

The surge, an extension of a pattern which has been evident in data from many sources for some time, now means London's prices are 20pc higher than at the last, pre-crisis market peak in 2007 (see the graph below).

Only two other regions are higher than their 2007 level: the "outer metropolitan" area around the capital, which is around 5pc higher than in 2007; and the "Outer South East" region, which also benefits from the London "heat effect", now around 2pc higher than in 2007.

All other regions remain below their previous peak, Nationwide said, with Northern Ireland prices faring by far the worst - at 49pc below their 2007 summit.

Nationwide's economist Robert Gardner said: "London house prices were up 18pc, taking the price of a typical home in the capital to £362,699 – more than twice the level prevailing in the rest of the UK when London is excluded. The gap between house prices in London and the rest of the UK is the widest it's ever been, both in cash and percentage terms."'

Another slant on the Nationwide story and worthy of it's own thread.

Edited by Sancho Panza

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I'd be weary of comparing the early 1990s and now. London is a very different place now to then. As is the world.

That is not to say London peppery isn't ridiculous and due a correction but I dont think one is comparing like with like. For better or worse London's rise to arguably the world's financial centre has transformed the factors driving its house prices, not to mention the growth in international capital flows and the factors driving them. Some of these changes could help a bubble on the way up and down, others hinder it.

A simple that's what happened before so it will happen again seems oversimplified. As much as people on here bemoan the 'it's different this time', things do change.

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Hi RK

Thanks for this; care to expand on why? Any timescales you could take a stab at?

Because all bubbles burst eventually. Canada, Australia and London will not escape.

I have no idea what the ultimate trigger might be (or might be claimed to be), i'd be speculating. Let's say an unknown unknown for now, but could just as easily be a mispriced known known.

True bubbles (for example +2std dev above real trend) tend to not last more than around 3 years. So I'd imagine it's not long for this world.

Poor old Mr Miliband is going to have his hands full one way or another.

(Of course, Carney/Haldane could actually attempt to intervene aggressively and perhaps prevent another disasterous blow off, but they don't seem to care one bit, preferring to 'remain vigilant' & 'monitor closely'. Which is exactly how we ended up where we are now. So I think relying on them to act isn't a sensible strategy. When they do it will be too little, too late and sufficiently behind the curve not to be material imo. They'll do what they've always done - attempt a clean up after the event and claim nobody could have foreseen it).

Edited by R K

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Only from the early 2000s did London prices truly detach from those elsewhere, in a trend which accelerated sharply in the years since the banking collapses of 2008-2009 government handed a blank cheque to bankers based in London.

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Because all bubbles burst eventually. Canada, Australia and London will not escape.

I have no idea what the ultimate trigger might be (or might be claimed to be), i'd be speculating. Let's say an unknown unknown for now, but could just as easily be a mispriced known known.

True bubbles (for example +2std dev above real trend) tend to not last more than around 3 years. So I'd imagine it's not long for this world.

Poor old Mr Miliband is going to have his hands full one way or another.

(Of course, Carney/Haldane could actually attempt to intervene aggressively and perhaps prevent another disasterous blow off, but they don't seem to care one bit, preferring to 'remain vigilant' & 'monitor closely'. Which is exactly how we ended up where we are now. So I think relying on them to act isn't a sensible strategy. When they do it will be too little, too late and sufficiently behind the curve not to be material imo. They'll do what they've always done - attempt a clean up after the event and claim nobody could have foreseen it).

Oh ok, I have noticed you posting elsewhere that you think the UK housing bull run might have a bit further to go. So you're thinking a London bubble pop at some point in the next few years maybe with a slowdown but no massive crash elsewhere, is that right?

Sorry not trying to pin you down and I know you weren't offering to make a lengthy specific prediction like that but I'm curious

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Oh ok, I have noticed you posting elsewhere that you think the UK housing bull run might have a bit further to go. So you're thinking a London bubble pop at some point in the next few years maybe with a slowdown but no massive crash elsewhere, is that right?

Sorry not trying to pin you down and I know you weren't offering to make a lengthy specific prediction like that but I'm curious

That's pretty much my view yes.

It seems to me that outside London/SE house prices are overvalued but not unduly so. For arguments sakes let's say 20-30%.

London though (as this thread title says) is accelerating away from the rest of the UK.

I suspect this is to do with several well documented factors including (but not exclusively) due to the wealth effect, both in London but also as a global financial centre; negative real policy rates, Help to Buy; pick up in growth, fall in unemployment etc etc.

I further suspect that if this additional demand were distributed across the UK it wouldn't be especially problematic. Local builders, land availability, local supply etc would be able to cope and the marginal demand might be more readily absorbed.

But in London you have a nexus of local maginal demand, global foreign demand, Boris Johnson flying out to Hong Kong to 'sell' London as a global real estate assets class, Osborne pumping up demand with HTB, a recovering financial sector, strongly rebounding employment, tax haven status (real & perceived) all thrown into the mix on top of VERY restrictied demand in a relatively small area, on the back of a depressed construction industry which is more concentrated and less able to respond than if it were distributed.

Hence this is having a non-linear outcome. i.e. a rapid increase in prices over and above that experienced in the rest of the UK.

That in itself sends a price signal to people like Boris Johnson, Chinese property developers, Arabs, Russians getting the hebee gebees over Putin and so on who double down on their bets. So in Soros terms the market is rapidly becoming reflexive. The participants response to the increasing price is itself impacting the price.

Again, if this were effect were distributed the impact would be dissapated and the marginal demand more easily absorbed. It is the concentration of these factors in London which is the issue.

At some point, some of these factors will go into reverse. It may be the global capital flows, it may be some problem with the financial services industry - maybe a large insured will go bust for instance, or a change in policy will result in the plug being pulled on RBS or some other indeterminate shock. Perhaps a sterling crash will reverse the flows.

In any event, it'll happen. It will no doubt impact the market ex-London, but I'd expect it to be less pronounced due to the London bubble being bigger on the way up, so it will be bigger on the way down. Thus if one wanted to buy property and restrict exposure to the downside (ignoring the upside for the moment) then one would not buy property in London.

But you'd be up against an extremely vocal and powerful opposition including Boris Johnson, Cameron, Osborne, the banks, the BoE, most of Westminster (both chambers), the CBI, the City of London, most of the media, global wealth, the Duke of Westminster and so on. All of whom have a personal and commercial interest in keeping the London bubble supported for as long as possible.

But as with Tokyo, and New York on the back of the Japanes bubble, London on the back of the Chinese and EM bubbles is ultimately unsustainable. I believe it will crash and the consequences will be severe (mostly for London - hopefully).

Edit: apols for typos can't be bothered editing

Edited by R K

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That's pretty much my view yes.

It seems to me that outside London/SE house prices are overvalued but not unduly so. For arguments sakes let's say 20-30%.

London though (as this thread title says) is accelerating away from the rest of the UK.

But as with Tokyo, and New York on the back of the Japanes bubble, London on the back of the Chinese and EM bubbles is ultimately unsustainable. I believe it will crash and the consequences will be severe (mostly for London - hopefully).

Good post, I'm in total agreement.

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That's pretty much my view yes.

It seems to me that outside London/SE house prices are overvalued but not unduly so. For arguments sakes let's say 20-30%.

London though (as this thread title says) is accelerating away from the rest of the UK.

I suspect this is to do with several well documented factors including (but not exclusively) due to the wealth effect, both in London but also as a global financial centre; negative real policy rates, Help to Buy; pick up in growth, fall in unemployment etc etc.

I further suspect that if this additional demand were distributed across the UK it wouldn't be especially problematic. Local builders, land availability, local supply etc would be able to cope and the marginal demand might be more readily absorbed.

But in London you have a nexus of local maginal demand, global foreign demand, Boris Johnson flying out to Hong Kong to 'sell' London as a global real estate assets class, Osborne pumping up demand with HTB, a recovering financial sector, strongly rebounding employment, tax haven status (real & perceived) all thrown into the mix on top of VERY restrictied demand in a relatively small area, on the back of a depressed construction industry which is more concentrated and less able to respond than if it were distributed.

Hence this is having a non-linear outcome. i.e. a rapid increase in prices over and above that experienced in the rest of the UK.

That in itself sends a price signal to people like Boris Johnson, Chinese property developers, Arabs, Russians getting the hebee gebees over Putin and so on who double down on their bets. So in Soros terms the market is rapidly becoming reflexive. The participants response to the increasing price is itself impacting the price.

Again, if this were effect were distributed the impact would be dissapated and the marginal demand more easily absorbed. It is the concentration of these factors in London which is the issue.

At some point, some of these factors will go into reverse. It may be the global capital flows, it may be some problem with the financial services industry - maybe a large insured will go bust for instance, or a change in policy will result in the plug being pulled on RBS or some other indeterminate shock. Perhaps a sterling crash will reverse the flows.

In any event, it'll happen. It will no doubt impact the market ex-London, but I'd expect it to be less pronounced due to the London bubble being bigger on the way up, so it will be bigger on the way down. Thus if one wanted to buy property and restrict exposure to the downside (ignoring the upside for the moment) then one would not buy property in London.

But you'd be up against an extremely vocal and powerful opposition including Boris Johnson, Cameron, Osborne, the banks, the BoE, most of Westminster (both chambers), the CBI, the City of London, most of the media, global wealth, the Duke of Westminster and so on. All of whom have a personal and commercial interest in keeping the London bubble supported for as long as possible.

But as with Tokyo, and New York on the back of the Japanes bubble, London on the back of the Chinese and EM bubbles is ultimately unsustainable. I believe it will crash and the consequences will be severe (mostly for London - hopefully).

Edit: apols for typos can't be bothered editing

Interesting and persuasive, thanks

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Vince Cable Sums Up The UK Housing Bubble In 5 Words

"Worse than before the crash," is the glaring headline from the UK's Independent, and Business Secretary Vince Cable warns, most families are "nowhere near" able to afford homes at average prices. As we have noted before, the UK is increasingly a divided nation (London and everyone else) and nowhere is that more clear than in home prices... a Cable warns this is producing an "unsustainable property boom."

20140404_cable2.png

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The pound will have to be devalued. It's the only way to save the housing market economy.

Is parity with the dollar enough?

How can I protect myself? ;)

Exactly the reason I have diversified my savings from sterling. They pulled that trick before and im not falling for it again.

[edit] Actually they have devalued more than once.

Edited by Wurzel Of Highbridge

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Something to bear in mind, is that when a correction does come, London may fall by a smaller percentage than the rest of the country.

But when measured in actual £££ those Londoners could still be losing more money.

Would you rather lose 20% of £500,000 or 50% of £100,000, I think a lot of people would choose the first because it wouldn't feel so bad.

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Something to bear in mind, is that when a correction does come, London may fall by a smaller percentage than the rest of the country.

But when measured in actual £££ those Londoners could still be losing more money.

Would you rather lose 20% of £500,000 or 50% of £100,000, I think a lot of people would choose the first because it wouldn't feel so bad.

I'd choose the first since I'd rather end up with £400,000 rather than £50,000 ;)

That aside, and picking up on RK, I suspect that it is London's status as a financial centre that is one of the main drivers. Of course, in 2008, the whole edifice should have come crashing down, but instead, thanks to the bailouts, the banks have continued unabated in their greed, allowing staff to continue to draw huge salaries and bonuses. In the meantime, their rapaciousness will eventually self-destruct again, and no government will dare try and bail them out in the same way. Then, finally, London goes down. At least, that's my opinion.

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Telegraph 2/4/14

'London property now costs 100pc more than property elsewhere in Britain. In pounds and pence the difference in price between the average home in and outside London is now £183,000, according to data from the UK's largest building society. The gulf has never been as great since detailed data began to be collated in the late 1970s. Although London prices have always been at a premium, in that initial period - between 1978 and 1984 - the gap between the capital and elsewhere was less than ten per cent.

And in the housing slump of the early 1990s, London lost its edge as the premuim between prices in the capital and elsewhere dropped again to around 10pc.

Only from the early 2000s did London prices truly detach from those elsewhere, in a trend which accelerated sharply in the years since the banking collapses of 2008-2009, and the financial and eurozone crises.

The figures emerge in the latest index from Nationwide, the building society, the provider of one of the most authoritative price indices.

Nationwide's latest data said London prices were up 18pc on a year ealier, around twice the rate of inflation experienced in the wider market.

The surge, an extension of a pattern which has been evident in data from many sources for some time, now means London's prices are 20pc higher than at the last, pre-crisis market peak in 2007 (see the graph below).

Only two other regions are higher than their 2007 level: the "outer metropolitan" area around the capital, which is around 5pc higher than in 2007; and the "Outer South East" region, which also benefits from the London "heat effect", now around 2pc higher than in 2007.

All other regions remain below their previous peak, Nationwide said, with Northern Ireland prices faring by far the worst - at 49pc below their 2007 summit.

Nationwide's economist Robert Gardner said: "London house prices were up 18pc, taking the price of a typical home in the capital to £362,699 – more than twice the level prevailing in the rest of the UK when London is excluded. The gap between house prices in London and the rest of the UK is the widest it's ever been, both in cash and percentage terms."'

Another slant on the Nationwide story and worthy of it's own thread.

London is up way WAY more than 20% since 2007.

That 20% probably only accounts for inflation.

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