Earlier this month, we noted further evidence that London’s housing bubble is bursting. In its October 2017 survey, the Royal Institute of Chartered Surveyors (RICS) reported the largest proportion of respondents seeing a drop in London house prices versus the previous month since 2009. The net balance was nearly two thirds (-63%) in favour of declines, which contrasted sharply with a national average which was marginally in positive territory (+1%).
The RICS data corroborated the Bank of England’s regional agents’ report a day earlier which highlighted “signs of excess supply in London and the South, but some excess demand in most other parts of the United Kingdom”.
The bad news for wannabe London residents is that in spite of the (slightly) lower prices, the affordability of residential property in the capital – at nearly 15 times income - is the worst it’s ever been. According to Bloomberg,
London homes are less affordable than ever before, despite slowing price growth and government attempts to cut the cost of housing for first-time buyers.
It now costs the average Londoner 14.5 times their annual salary to purchase a home, the highest level on record, according to a report Tuesday by researcher Hometrack. Cambridge, Oxford and the English seaside town of Bournemouth also have price-to-earnings ratios in the double digits, the report shows.
“Unaffordability in London has reached a record high, despite a material slowdown in the rate of house-price growth over the last year,” Richard Donnell, research director at Hometrack, said in an interview. “The gap between average earnings and house prices in the capital has never been wider.”
Even with the recent slowdown, the average cost of a first home in the U.K. capital is still up 66 percent since 2012 as supply fails to meet the demand from domestic buyers and overseas investors. Spiraling values have caused the number of younger buyers in the capital to fall, something that Chancellor of the Exchequer Philip Hammond sought to address last week when he abolished stamp duty for first-time buyers of homes worth up to 300,000 pounds ($400,290).
London house prices rose an average 3 percent in the year ending October to 496,000 pounds, less than half the 7.7 percent growth rate of a year earlier, Hometrack said. The researcher defined London as the 46 boroughs in and around the U.K. capital.
Last week, making housing more affordable was one of the centerpieces of Chancellor of the Exchequer, Philip Hammond’s, budget speech. However, some commentators doubted that the new measures would help, as the Financial Times noted.
Mr Hammond’s signature policy plan was a £44bn package of investment, loans and guarantees to increase the annual amount of new homes built to 300,000 in the middle of the next decade, up from 217,000 last year, aided by planning reforms designed to encourage homebuilders not to sit on permissions already granted.
The measures on housing supply were augmented by a headline-grabbing cut in stamp duty for first-time buyers on properties below £500,000. No stamp duty will apply for purchases below £300,000.
However, in a blow to the chancellor, the independent Office for Budget Responsibility said the main effect of these cuts would be to raise house prices and only lead to the purchase of an additional 3,500 homes a year. The fiscal watchdog also indicated it did not think the house building measures would make much difference. Lower household incomes led it to reduce its forecast for the growth in spending on home building.
Speaking to Bloomberg, Hometrack’s Donnell was not convinced either since housing, in London particularly, is already so unaffordable.
Still, Donnell is skeptical that the tax measures in Hammond’s budget speech last Wednesday will have much effect on affordability, given the large sums needed to get on the housing ladder. “The changes to stamp duty are unlikely to significantly impact this trend as the greatest challenge for first-time buyers is the income required to pass mortgage-affordability stress tests,” Donnell said.
However, London’s lack of affordability and limited available stock is having a positive impact on the rest of the UK, as Bloomberg explains.
The northern English cities of Manchester and Birmingham registered the fastest house-price growth, at more than 7 percent. London will continue to underperform some regional cities over the next two to three years as costs adjust to levels buyers are willing to pay, while the price-to-earnings ratio in the capital is “expected to drift lower,” Hometrack said.
It will take more than underperformance to make London housing affordable, more a like a crash.
No comments:
Post a Comment