London: The politics of property
London is about to vote and select a new mayor – probably one of the 10 most powerful and influential political positions in the country. Marcus Whewell, CEO of The Guild of Professional Estate Agents, examines what impact the London election could have on the capital’s property market.
Boris Johnson has of course decided not to run again, but is this election likely to make any difference to the property market in of the world’s largest and most successful cities?
For many, in truth probably not. London house prices have defied gravity as a heady mixture of overseas investment, rising population and speculation (including buy to let) has driven the average price to almost £450,000, still tracking at a 10% annual increase according to Land Registry. Mean prices are forecast to reach £550,000 by 2020, which would require a £28,000 deposit and a salary of £118,000 to secure a typical mortgage. Ownership is, therefore, becoming an exclusive club for the already wealthy.
This naturally ‘knocks on’ to the rentals market, putting increased pressure on the finances of aspiring homeowners, for whom the dream moves further away as prices outstrip wages. Of course, there are many so-called ‘lifestyle tenants’, but I believe only a few would freely waive the significant profits to be made from being on the housing ladder.
The occasional poor, and frankly unacceptable standards of some rental accommodation has led to several charities to campaign for Government intervention, but has this ship already sailed?
Boris Johnson launched his ‘rental standard programme’ in May 2014, hoping to use voluntary accreditation to attract landlords to agree to minimum compliance. This has largely failed (in terms of signups to the scheme), showing the difficulties in engaging with such a diverse and elusive market. I can’t see any new incumbent taking on such a task again without formal legislation, which is highly unlikely given the Government’s other pressing priorities.
Alternatively, could a new mayor fix housing supply in the capital? Lead-times for significant new build developments tend to be years rather than months, so his/her influence will be diluted with an unwelcome lag (a little like the Government using interest rates to influence employment).
Of course, some form of rent controls could also affect the disposable income of a high percentage of London residents (30% of the overall population), but no-one is actively planning such a measure, and may just restrict future supply.
So what could move the London property market? I would suggest one a few major catalysts:
Firstly, Brexit could cause a significant adjustment in several ways:
o Reducing the desirability of the location for international employees
o A flight of capital could influence interest rates and lending policies
o By reducing general confidence in a city continuing to project itself on a world stage against growing competition
A second factor would be the pending Basel III controls, that will look to build up banks’ capital bases (meaning that they can lend less against any given reserves) – due to come into play later this year.
Thirdly, the increasing attractiveness of ‘neighbourhood’ commute areas such as Luton and Dartford may persuade people to make a different decision on where to live – but this is more likely to affect first time buyers and upscalers than the property elite.
On the other hand, London has always been seen as a ‘safe haven’ in times of uncertainty, and so any escalation in the Middle East conflicts or a serious challenge to the European model (see Holland) would probably attract further funds and overseas relocations. It is difficult to speculate what would result from a Trump victory in the US, apart from a strong ‘political gulfstream’ from the West.
So in truth, the London market is driven by fundamentals and sentiment: sadly, as with most economics, any individual’s ability to influence this is on the wane.