Simon Jenkins: London’s housing ‘crisis’ is not about the cost of homes
Lack of supply and the insatiable demand for living space in a popular city are the real problems
Market move: housing surveys report that the bubble in the capital’s house prices has finally burst
Back to panic stations everyone. “London house prices set to fall,” cries the headline. Already they are down 2.9 per cent in Westminster and 2.7 per cent in Kensington and Chelsea since the start of the year. The market is off the boil. The bubble is over.
If one thing mesmerises London’s chattering bourgeoisie more than house prices rising, it is house prices falling. For the past year dinner talk has been of soaring values, booms, bubbles, tulip fever, demented offshore oligarchs and Asian princes. They sobbed as yummy-mummies complained their infants could not reach the first rung on the Chelsea housing ladder.
Now the bubble has burst and the wailing has changed its tune. We hear, “Our house has gone down two whole per cent in six months, and we’ve still got the Poles digging the basement.” Suddenly the trustafarians are victims of negative equity. What will the Government do to help? It surely feels our pain from over in Notting Hill.
Last week’s batch of housing surveys showed London house prices for April/May falling in 12 of London’s 33 boroughs. The annual figure is still up some 13 per cent but in most boroughs this has put prices only back to the 2008 peak. Mortgage approvals monitored by Nationwide are down 17 per cent on January, while 44 per cent of transactions have sellers cutting the asking price.
The steepest drops have been in Westminster, Kensington and Chelsea, but they are also falling in Hammersmith and Fulham, Islington, Lambeth, Barnet, Hackney, Ealing, Kingston, Brent, Tower Hamlets and Redbridge. A market analyst told the Standard: “The silly season is definitely over.”
How should a sane person react to this news? There is little sympathy in the offshore “ghostlands” of Belgravia and Kensington. With more than 80 per cent of hotspot sales in west London being to overseas buyers, prices are unrelated to domestic market conditions. They respond instead to Dubai, Switzerland, Singapore, the state of the euro or Asian politics.
The lofty gated “communities” of global speculation, which Boris Johnson so eagerly welcomes to London, will soon tower over Nine Elms, Battersea, Earls Court and North Kensington. Their windows will stay dark and their parking bays empty. They are hardly worth advertising in the British press, and should really appear in the Land Registry merely as cash-on-reserve. This London starts at The Ritz and extends west to Earl’s Court Road, like a sprawling Fort Knox, utterly unrelated to the capital’s housing needs.
That leaves the rest of us. Here house prices are simply recovering from the credit crunch. Government housing subsidies have had minimal impact in London. Treasury figures show barely 350 Londoners benefiting from Help to Buy. Yet last month estate agent Savills joined the chorus of panic, declaring there was “not a bubble but a crisis”. There was “a shortfall of 160,000 homes” in the south of England. Similarly London is said to “need” 14,400 more homes than are planned by the Government “to meet demand”.
This is daft. When the whole country, and much of Europe, wants to live in London it is hard to see what “demand” means. There is an infinite demand for a London flat or house, from immigrants, divorcees, widows, newly-weds, above people just wanting to trade up or down. “Household formation” or council waiting lists are meaningless. There is a more or less finite amount of land and an infinite number of occupants. Supply can never meet demand. What it can do is use price and tax incentives to allocate the houses we have, and encourage the extra number that Londoners can still convert or build.
Movements in London house prices are caused not by those ogres much cited by the construction lobby: planners, nimbys and land hoarders. Countries that have spacious land and few planning constraints have seen prices rise in booms even faster than London. The current year-on-year price rise in Dubai is 27 per cent, China 17 per cent, Australia 11 per cent and America 10 per cent. The British figure nationwide is nine per cent.
Obviously more houses are a good thing, but short-term prices reflect the availability of money. It is Treasury policy on borrowing and taxes that creates and bursts bubbles. That is why America’s subsidised market went berserk 10 years ago (with no curb on land supply) and brought the world down with it.
If there was a housing “crisis” when prices were soaring, presumably there is no crisis when they fall. The reality is that we all need more living space. In a crowded city most of it will come from making better use of existing land and buildings. Inner London is the lowest-density big city in Europe. Permits for redevelopment should be more available. If this means a degree of “garden grabbing” so be it.
The key is to use existing property more shrewdly and efficiently. The Coalition was right to crack down on under-occupation of public housing. Equally Labour is right to give (slightly) greater security to private tenants.
The tax system should encourage sub-letting, as through Airbnb and other quick-rent schemes. Meanwhile council tax is regressive and should be switched to a tax on space, to discourage space-hoarding. There should be regular revaluations, with I, J, K and L bands above the present H-band threshold of £950,000. This is a better tax than punitive stamp duty, which penalises transactions and thus market movement.
Housing policy is plagued by political interference, thus operating in a perpetual state of hysteria. There is no housing crisis in London, only the restless competition for living space that is a feature of every popular and successful city. That is why an occasional fall in house prices is welcome. It should cool the fevered brow and encourage clear thinking.