At least estate agents are happy. Image: Getty.
Show Hide image

Two charts that show why London home buyers are totally screwed

Everybody move to Paris.

More hilarious news from the London housing market. In the year to June, the average house price in the city climbed 25.8 per cent. The average price has now breached £400,000 for the first time.

To put that in a context, a healthy mortgage is generally agreed to cover no more than 90 per cent of a property's value, and to represent a maximum of 4.5 times the borrowers' income. So a couple of first-time-buyers hoping to buy an average London home would need a joint income of £78,000, putting them in the richest 4 per cent of households in the country. Oh, and they'll also need £40,000 in the bank.

Should you already own your own home in the city, and are consequently mystified that anyone could consider this a problem – congratulations on successfully having been born at the right time.

All this looks a lot like a bubble – prices are rising at their fastest rate since 1987, and look what happened then – but it's in the nature of bubbles that we can't be certain we're in one until they burst. So in the mean time, here are two charts.

The first one compares price increases in London with those in various other major world cities, over the course of 2013. (They’re a bit out of date because December was the most recent month for which we could find enough figures.) We've compiled it using data from the Bank of International Settlements, and the S&P/Case-Shiller Home Prices Index: the various indexes it's based on work in slightly different ways and cover slightly different things, so we're not claiming the figures are anything more than indicative. Nonetheless, they do give you a sense of the trends in various cities.

London is an outlier – but it's not the only place having a crazy house price boom. Prices have gone nuts in Sydney and Shanghai, too. The difference is, of course, that Australia and China both have much faster growing economies than the UK, much of which still remains in the doldrums.

All that said, it looks like a great time to buy a nice pied-a-terre in Paris, if you've got the cash to hand.

This second chart uses data from government research, asking the public whether they were in favour of building new houses in their area. The polling was conducted in 2011, so it's just possible attitudes have changed in the mean time. Either way, though, it explains rather a lot.

In inner London, where land is scarce and most people rent, everyone wants more housing. But in outer London, where there's more space, and where any major new housing programme is realistically going to have to begin, opposition to house building is stronger than the national average. In fact, people in outer London oppose house building more strongly than people in any other region of England.

So to sum up, we're screwed.

This is a preview of our new sister publication, CityMetric. We'll be launching its website soon - in the meantime, you can follow it on Twitter and Facebook.

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Daniel Hannan. You can find him on Twitter or Facebook.

Getty Images.
Show Hide image

Brexit is teaching the UK that it needs immigrants

Finally forced to confront the economic consequences of low migration, ministers are abandoning the easy rhetoric of the past.

Why did the UK vote to leave the EU? For conservatives, Brexit was about regaining parliamentary sovereignty. For socialists it was about escaping the single market. For still more it was a chance to punish David Cameron and George Osborne. But supreme among the causes was the desire to reduce immigration.

For years, as the government repeatedly missed its target to limit net migration to "tens of thousands", the EU provided a convenient scapegoat. The free movement of people allegedly made this ambition unachievable (even as non-European migration oustripped that from the continent). When Cameron, the author of the target, was later forced to argue that the price of leaving the EU was nevertheless too great, voters were unsurprisingly unconvinced.

But though the Leave campaign vowed to gain "control" of immigration, it was careful never to set a formal target. As many of its senior figures knew, reducing net migration to "tens of thousands" a year would come at an economic price (immigrants make a net fiscal contribution of £7bn a year). An OBR study found that with zero net migration, public sector debt would rise to 145 per cent of GDP by 2062-63, while with high net migration it would fall to 73 per cent. For the UK, with its poor productivity and sub-par infrastructure, immigration has long been an economic boon. 

When Theresa May became Prime Minister, some cabinet members hoped that she would abolish the net migration target in a "Nixon goes to China" moment. But rather than retreating, the former Home Secretary doubled down. She regards the target as essential on both political and policy grounds (and has rejected pleas to exempt foreign students). But though the same goal endures, Brexit is forcing ministers to reveal a rarely spoken truth: Britain needs immigrants.

Those who boasted during the referendum of their desire to reduce the number of newcomers have been forced to qualify their remarks. On last night's Question Time, Brexit secretary David Davis conceded that immigration woud not invariably fall following Brexit. "I cannot imagine that the policy will be anything other than that which is in the national interest, which means that from time to time we’ll need more, from time to time we’ll need less migrants."

Though Davis insisted that the government would eventually meet its "tens of thousands" target (while sounding rather unconvinced), he added: "The simple truth is that we have to manage this problem. You’ve got industry dependent on migrants. You’ve got social welfare, the national health service. You have to make sure they continue to work."

As my colleague Julia Rampen has charted, Davis's colleagues have inserted similar caveats. Andrea Leadsom, the Environment Secretary, who warned during the referendum that EU immigration could “overwhelm” Britain, has told farmers that she recognises “how important seasonal labour from the EU is to the everyday running of your businesses”. Others, such as the Health Secretary, Jeremy Hunt, the Business Secretary, Greg Clark, and the Communities Secretary, Sajid Javid, have issued similar guarantees to employers. Brexit is fuelling immigration nimbyism: “Fewer migrants, please, but not in my sector.”

The UK’s vote to leave the EU – and May’s decision to pursue a "hard Brexit" – has deprived the government of a convenient alibi for high immigration. Finally forced to confront the economic consequences of low migration, ministers are abandoning the easy rhetoric of the past. Brexit may have been caused by the supposed costs of immigration but it is becoming an education in its benefits.

George Eaton is political editor of the New Statesman.