In a country where the state of the housing market is core fodder for the media, London has generated some of the most attention-grabbing headlines and plenty of column inches. Many of these have revolved around the fact that London’s house prices have grown so high and its stock of local authority housing so low that people on lower incomes, particularly younger people, have to resort to desperate measures to buy even the smallest of properties (and the shrinking square footage of London flats is becoming as legendary as the prices). Over the last year or so, however, London house prices have been heading steadily downwards; here are three possible reasons as to why.
Supply-side growth
Market dynamics ultimately boil down to supply and demand and over recent years developers have worked hard to squeeze in the maximum of new housing in the minimum of space. While some may criticize the shrinking footage of many new-build flats in the capital as being rabbit hutches, others see these “micro-apartments” as the way forward in the 21st-century world. Regardless of how people feel about this, the fact is that they are a reality, as is the demand for them.
Reduced demand
Much has been made of the effect of Brexit on London in general and, while this may indeed be a factor and could feasibly have a significant impact on the top end of London’s property market, there are other possibilities. First of all, the government has invested heavily in travel infrastructure, particularly Crossrail, thereby increasing the attraction of London’s commuter belt and tempting people away from the actual capital itself. Secondly, the “Northern Powerhouse” initiative has seen the north of England shake off its grim image and become a highly attractive place to live and work, with the result that there is less incentive for northerners to head down south and more incentive for southerners to make the trip up north, again, drawing demand away from London.
Market manipulation
While the basic laws of supply and demand are as old as the concept of a market itself, they can be manipulated by government actions. There are three recent actions by the government, which could have contributed to downward pressure on London house prices. The first is the change to stamp duty in 2014, which reduced it for lower-priced homes and increased it for higher-priced homes. Obviously this was going to have a disproportionate effect on London as it has a disproportionate number of higher-priced homes. The second came in 2016 with the introduction of stamp-duty surcharge on the purchases of second homes. In addition to having a high proportion of natural renters (such as students and young adults), hence a vibrant buy-to-let market, London has long been a place where people keep a “pied-a-terre” for working in (or just visiting) the capital, while they have their main property elsewhere. Finally, there are the changes to mortgage tax relief, which have not gone down well with buy-to-let landlords and do not encourage them to take on new mortgages, particularly not somewhere as expensive as London.
Author Bio
Fletcher Day are a full service commercial law firm based in Mayfair, with a specialist team of commercial property and conveyancing solicitors in London.
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Daniel Peacock