Wednesday, 2 September 2015
Unaffordable London House Prices are Unsustainable
As the Guardian reports that property prices in London are now 12.2 times the median London salary, home ownership is effectively out of reach for the average Londoner.
The Guardian examined house price data going back 20 years in the UK, with the most affordable areas requiring a 6.6 times median earnings things are not much better elsewhere in the country for those looking to buy a property.
How can prices rise like this, if people’s earnings are not keeping pace? Where is the money coming from to sustain this level of house price inflation? There seems to be number of factors at work, and in London especially, foreign investors are fuelling the rise by buying in (mostly) central London.
If you walk around central London these days, you notice a huge amount of construction work going on. There is commercial construction of course, but many of the building sites are for residential luxury apartment blocks, where penthouse flats can be had for £20 million or so.
With all of the economic uncertainty of recent times, near zero interest rates, fluctuating stock prices and wobbly currency values London property has become a safe bet. A reserve currency if you like, for those with huge amounts of cash to invest. London property prices tend to rise over time and flats and houses can always be let giving a decent return compared to other investments.
The rise in central London property and the more fashionable outer London areas causes a ripple effect in the cheaper areas, which then tend to rise also. The people buying in these areas must either be earning well above the median wage (£24,600 pa in London) or they are able to get large deposits from parents, who in turn are probably re-mortgaging their own properties.
This leaves people who cannot get this parental help with little choice other than renting, and rents follow the price of buying property closely. To make matters even worse, the Evening Standard reports that nearly three quarters of million workers in London are on zero hours contracts.
How will essential services workers, nurses, fire fighters, bus drivers etc, let alone cleaners find anyway to live in London? And how can London function without these workers?
Apart from creating another property bubble to falsely grow the economy, how can this laissez faire strategy provide the homes that people need in London? With London’s population set to increase from 8 million to 10 million in the coming decade, the whole housing situation in the capital especially looks to be heading for crisis.
Sustainable this is not, by a million miles.