London housing dynamics

House prices in London

For the most part of the twenty-first century, London has experienced a growth in house prices, continuing a trend, which was set off in the late 1980s. The continuing increase in house prices has survived the western financial crisis, which occurred in 2007, after bankers and financiers had robbed the working classes of their savings and wealth, and had led to the collapse of banks and capital flows. In the five years following the crisis, house prices stagnated or increased slightly, but in 2013, it was reported that prices started to rise very fast again. In September 2013 prices asking prices were up 5.6% than the previous high in July of 2012

Geographical spread

Prices have risen throughout the city, but more so in the center of London, in the Boroughs immediately bordering the center of London, and in the wealthier suburbs situated at some distance from the center.
In recent times, i.e. in 2013, there has also been a recent surge in the prices of houses in the lower end of the market.


Explaining the rise in London house prices

Various reasons have been put forward for why London’s house prices have continued to rise throughout the twenty-first century, and through the western financial crisis, during which time there was a trend for house prices to drop. Reasons include increasing demand to live in the city outweighing new building, which in turn was fostered by the expansion of the service sector in London. Other reasons include investment in London properties form international and London based financiers, speculators and investors, and in 2013, a new government commitment to guarantee bank mortgages and provide equity loans, effectively subsidizing mortgage repayments of borrowers.


Population increase exceeding demand for housing

One of the arguments put forward for why house prices have risen in London is that there are more people wanting to move into London than there are new houses being built.

There are several reasons for why London’s population has grown. One is the growth of the banking and financing sectors, fuelled on their recent heist of the wealth of the working classes across western capitalistic countries. The growth of the financial sector has encouraged a lot of wealthy individuals, wanting to buy a place in London, so they can be close to their money and its manager.

London is also an attractive site for international businessmen and women, looking to establish a European base. This has been encouraged by the United Kingdom’s low rate of corporate tax, which has appealed to businessmen looking to increase their profit margins. Furthermore, successive British governments have deliberately attracted international investment in housing in the United Kingdom, by passing laws, which means people from outside of the UK, who can demonstrate they have residence in another country, can own homes in the United Kingdom, without having to pay tax on income earned outside of the UK. In other words you only have to pay tax on income generated within the UK, which distinguishes the UK from other European countries, where you would commonly have to pay tax on all the income you earned, no matter that you might have earned it outside of the country.


London based investment

It has been suggested that whilst London house prices continue to rise London properties are also seen as a good investment for the many bankers and financiers that live in London, with a taste for speculation and seeing good gains to be made in the rising house prices of London.


International investment in London housing

It has been argued that one of the reasons house prices in London have gone up, is not just that people want to move into London, but that people, who do not want to live in London, also want to buy houses in London. It has been said that during the twenty-first century there has been considerable investment in London property from international investors. Futhermore it has been suggested that new building in London has been prompted by the potential for attracting foreign investors.

There are various bits of evidence pointing to the scale and type of international investment in London housing. International investors come from all parts of the world, for different reasons.

International investment from wealthy Europeans was prompted by the western financial crisis, which started in 2007, precipitated by the institutionalized looting of the working classes, by western bankers and financiers. The financial crisis affected many parts of the western world, and created economic and political insecurity and upheaval across a range of countries. Many western Europeans, who believed their money and assets to be unsafe, and fearing collapse of the Euro, responded by selling up and investing in London property. Large numbers of Greeks, Italians and French have all said to have resorted to buying into the London property market. It has been suggested that in the twenty-first century London property has been widely regarded by international investors, as a global reserve currency, a bit like gold or the dollar.

However the rising prices of London property means that for some it is not just a source of financial security, it is also seen as an investment likely to yield a high return. It is said that far eastern businessmen and women own most of the property in and around Canary Wharf and Limehouse. In 2013 estate agents looking to sell new flats in Elephant and Castle were said to be targeting Asian investors. At the beginning of 2013 it was reported that the majority of buyers of 866 luxury apartments planned for the Battersea Power Station were foreign, with Singaporeans taking more than any other foreigner type. The development itself was funded by a Malaysian development company.

Businessmen grown fat on the mineral wealth of the Middle East and ex-Soviet Union have also invested in London property, partly because of a tradition of spending summer time in London, benefiting from the warm but cooler climate, and enjoying the dining, shopping and entertainment. In the twenty-first century oligarchs from the ex Soviet Union have also taken to having a London pad, Roman Abramovich and Boris Borozevsky, noticeable examples.


Government subsidies for borrowers

In 2013 house prices in London were felt to have experienced a further boost when the Conservative Liberal Democrat coalition government provided financial assistance to borrowers. This assistance took the form of two schemes, the first being the Help to Buy equity loan, offered to borrowers looking to buy new homes, which has to be used in conjunction with a loan provided by a bank, but which offers a lower interest rate, which effectively means the government is subsidizing the interest paid by borrowers. The other scheme was the Help to Buy mortgage guarantee scheme, in which the government would guarantee the mortgage provided to people with a deposit of between 5% and 20%.


The effects of the government subsidies

The effects of these schemes has yet to be understood.

It has been predicted that a key barrier for any prospective borrower is the income to pay repayments, and given that those without a large deposit are likely also to have low wages, it has been suggested that the scheme is unlikely to benefit them. Where people have a good strong income, but little savings, as in the case of young people working in banking and the financial sector, it has been predicted that this scheme will be quite useful. It has also been suggested that those who might benefit most from the mortgages are people who could afford to pay a bigger deposit, but who in taking advantage of the new 95% mortgages, can pay less of a deposit and keep their cash free to invest in other ventures. It also means that speculators, looking to cash in on short-term increases in house prices, can buy more houses, with the same amount of money, using the 95% mortgages.

It has been suggested that one of the effects of the government scheme is that speculators, anticipating rises in the price of new builds and properties in the lower end of the market, in response to increased demand, are buying lower value properties for cash. Paradoxically this move itself is leading to the house prices anticipated. So for example in the last six months, houses for sale in Tottenham, of around the three hundred thousand pound mark, have increased in value by fifty thousand pounds. Speculators are, apparently buying the properties off private landlords, who had been used to receiving high rents, subsidized by housing benefit, but with changes to housing benefit could no longer attract those rents.


The mother of all Ponzai schemes

The elevation in house prices bought about by inward international investment in London housing seems to be creating a huge ponzai scheme. As the prices rise, so international investors looking for a good investment, are more likely to invest in London housing, causing prices to rise and causing even more excitement about the prospects of investment. However like all housing bubbles the price of London housing if likely to crash at some point. Interestingly, if and when it does, it will be people all around the world who will be affected and London workers, who have managed to scrape a deposit together, and who can afford the large repayments, who wont be able to sell the house for the value they bought it.


Rising rents in London

Since the financial crisis, it has been argued that rents in London have risen fast.


Affordable rents

It has been said that during the twenty-first century Londoners have paid more of their wages in rent, than they used to.

This is for two reasons. First rents have gone up.

Second in the second decade of the twenty-first century the government put a cap on the amount of housing benefit a family could claim, which meant that in many cases families could no longer afford the rent being charged on their property, which meant they had to leave.

The government policy of capping housing benefit also had the effect of reducing the profitability of renting out poorly maintained properties in cheap areas. Taken together with another government programme, which aimed to provide government guarantees for 95% mortgages and offer low-interest loans to borrowers, and which promoted speculation in the low end of the housing market, the result was that private landlords have started to sell off to speculators. In Tottenham, for example, it has been said that speculators are coming in with cash and buying properties in the three hundred thousand pound range, from private landlords, with the intention of refurbishing and then selling on at a profit, once the government schemes have kicked in, increasing competition for London’s low end housing stock, and elevating prices.


The consequence for London and its people

The consequence of spiraling house prices and rents is that working Londoners, earning an average wage find it impossible to buy a property in London, and so have to rent or move out into commuter towns. However the rents in London are also rising, which means that most Londoners are paying a good deal of the earnings to landlords.

Even people who were earning, in London terms, a comparatively large amount of money could struggle to find a home in the part of London that they wanted. In 2013 it was said that Islington, a Borough on the northern outskirts of central London, which just forty years earlier had been considered a slum, was now unaffordable to most Londoners.

London home owners can however benefit from the price rises, either through selling their house, or remortgaging it.

Michael Goldfarb reckons that more expensive property in London has led to prices rising for restaurants, cinemas, bars and theatre tickets; although quite how that follows I am not sure. Some predict that teachers, artists, students and civil servants will no longer be able to live and contribute to London’s social mix. One headmaster in Earl’s Court said, ” Things are changing for the school, which reflect our changing community. We began to see the changes as the new benefit regulations were introduced. These have meant that families cannot afford to rent privately locally. This, coupled with the shortage of social housing, is having a profound effect on the school. At first the effect was subtle but this year there is evidence of dramatic change. In 2011, about 63% of children in the reception class were eligible for free school meals; this year only 23% are eligible, a reduction of around two thirds. Linked with this has been the rise in children whose first language is English. In 2011, only 18% of the reception class had English as a first language whereas this year 33% of the children have.” It has been argued that as London increasingly becomes a place for an economic elite it risks losing what is most exciting about its identity. One article in the Guardian states, “We can see this most explicitly in the way that flats in Shoreditch and Hackney and Peckham are too costly for the students and young artists that turned those neighbourhoods into creative hotspots in the first place”.

It has been argued that the capture of London’s property for international investors and London based financiers and bankers, will result in a changing of London’s social ecology. Michael Goldfarb has argued that most parents are raising their children in a place that – on current trends – will not be a place that they can afford to live when they grow up. In other words, the current economic changes will lead to a lack of attachment to community and people and place, the inference being that this will in turn lead to a deterioration in peoples’ mental and emotional health.

Ed Vulliamy reckons that the pace at which property is being bought up by international and London based investors is creating a culture of The Devil May Care as investors carry out large and noisy works, with no concern for how those works impact on the lives of the people around them. Certainly, since the beginning of the twenty-first century, oligarchs have arrived in London with dreams of building palaces of extravagance, in leafy suburbs and more central locations. The result is that all over London, the peace and quite and bliss of London’s luxurious and leafy suburbs are being split open, by the heavy industry of workmen, renovating and creating new palaces on prime plots. It has been reported in London media for the last ten years, that there have been a number of developments, causing an extreme amount of noise pollution, dust and general discomfort for neighbours. Ed Vulliamy complained that in Notting Hill, there was noise of this kind from 8 am until the evening, which made living in his house like sitting all day in a dentist chair, making it impossible to work from home, and turned one into a nervous wreck. Pavements were said to be impassible with all the works taking place.


Policy options and values

Current government policy, which has remained largely unchanged since the beginning of the twenty-first century, under Labour, Conservative and Liberal Democratic administrations, has been to create policies, which encourages the international rich, including London’s financiers and bankers, to buy up London property from the rest of London’s indigenous working population. The result has been to push London’s indigenous working population into renting. High rents have meant that London’s indigenous working populations have to give more of their income to rent than in the past.

Alternative policy options include reducing international investment, to bring house prices down, making it easier for London’s indigenous working population to buy and live in London. This however is not in the interests of the banks and financiers of London, who make their position to the leading political parties of the day, very clear, in harshly spoken whispers in shadowy corridors and secret meeting rooms. No political party has had the balls to take on the banks in the interests of working people up to now. Although the Liberal Democrat’s deputy leader, did call in 2013, for government intervention to reduce the number houses and flats being bought by overseas buyers, and higher stamp duty or council tax on properties bought or owned by non-EU citizens or companies registered outside the EU.

A second alternative would be to increase the building of social housing in London, which would be dedicated towards housing people who worked and lived in London, and reducing the rent they have to pay. Alternatively, government could fund building, which could then be sold at subsidized prices, to working classes, and make it more possible for people to buy housing.

Some institutions are coming up with creative ways of providing accommodation for poor people. In 2013 the Forest YMCA received planning permission, to transform shipping containers from China, into new homes in Waltham Forest, northeast London. The containers, which cost £20,000 each, will be rented out for seventy-five pounds a week, which is quite cheap. Apparently the containers will be fitted with en-suite bathrooms and air conditioning. The YMCA came up with the idea, after it had struggled to help young people, who had stayed in supported housing make the transition to independent living. It was pointed out that young people who were working were often unable to afford the costs of renting in the private sector in East London or able to afford the mortgage for a home.


Protests against the selling off of social housing

High prices and high rents have prompted complaints from people who feel that the housing market is being driven by a profit motive, which effectively empties the coffers of normal working people, into the pockets of the bankers and financiers, many of whom robbed the working classes of their wealth in the decade leading up to the western financial crisis in 2007.

In 2013 a group of people squatted what was labeled as Britain’s most expensive council house,in Southwark, south central London, in protest at the lack of affordable housing for the normal working class people of the Borough, and the fact that Southwark was alleged to be selling off the social housing that it had. The ex Council flat, which was in need of renovation, was believed to have sold that same year for £3 million.


How the very rich trade property

Apparently there is a new trend amongst the very rich, not to trade their property through publically accessible websites and estate agents, but instead privately, in a way that has been termed off-market. Apparently this is because people with such wealth, demand security, and they don’t want the floorplan of their home in the public domain. They also want discretion, and don’t want the world to know about their personal dealings and movements.


Advice for buyers

It has been suggested that buyers who feel they can afford repayments at current interest rates of 0.5%, should consider whether they could still afford repayments, were the interest rate to go back up to 5%. Patrick Collinson of the Guardian writes, “…a return to ‘normal’ rates of 5% or more has economists in a panic. But one day we will see base rates rise, and the cost of servicing big HTB loans needed to afford today’s prices really will toast the buyers.”




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