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 (They’re a bit out of date because December was the most recent month for which we could find enough figures.)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.