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So-called property porn continues to make up a good percentage of the TV schedules 25 years after Changing Rooms started Building the Dream in a Location, Location, Location for The Poshest Sleepover in Millionaires’ Mansions, then over to The Great Interior Design Challenge, creating some Grand Designs, and moving on to daytime TV with rather lower budgets and more prosaic ambitions with House Doctor and Homes under the Hammer.
More than one of these shows is approaching its silver anniversary, and you’re sure to have seen many of them – perhaps the daytime offerings too – and possibly even been addicted to one or two ?
In a roundabout way, they’re all selling the story that rising house prices are a Good Thing. The recent publication of the new London Plan ahead of the delayed Mayoral Election this week, presents a good opportunity to take the long view of the property market, and test this hypothesis in the real world.
Over the last two decades, there has been a 46% increase in the number of young people aged 20-34 living with their parents 🔗
The evidence from first-time buyers is that spiralling prices are not such a good idea, especially post-COVID. Excluded from markets such as our own local one, where one bedroom flats start around £250k, younger people have wondered how they’ll get on the mythical ‘property ladder’ for a while now. Having been locked-down for much of the last year, they may be further destined to stay at home with mum’n’dad for the foreseeable, their best hope of ‘moving out’ may be to convert the garage to put a door between parents and the resultant substandard bedsit, or take a government help-to-buy mortgage – one that possibly helps stoke prices more than helps make housing affordable. A poor show all round.
Classic economic theory says that rising prices stimulate the economy and increase house builder’s appetite to build. The statistics don’t bear this out, with completions only just approaching the levels of 15-20 years ago, having been in the doldrums through periods of huge price inflation (with the real possibility of correlation), London being a particular “white spot” despite the highest price rises. Hereabouts there are many factors at play, land availability being just one of them; the theory is too simplistic.
And what of this cash – where does it come from ? From not spending in local shops and hospitality, or just adding to a debt mountain. Neither are good for the real economy, locking away income for the foreseeable, and once on the ladder, the next step involves an increasing gap as prices rise, so any increased disposable income is – disposed of. Best start saving now, or better move up quickly, perhaps by taking on an uncomfortable level of debt, before the price gets out of reach.
There remains a widespread assumption that existing homeowners subscribe to the benefits of rising prices. Pragmatic Marxists might even tell you that releasing equity is a way to feedback escalating values to the proletariat (that’s your children, by the way). But older voters (always sought after, unlike Auntie or marketers, forever chasing the young – discuss), may soon get tired of their children still at home in their 30’s and even 40’s in London, as the direct effect of rising prices, and may start voting otherwise. With the equivalent escalation of the average age of moving out, parents may become too old themselves, and disinclined to move at the time they might be able to release equity, and enjoy it. Taking on what looks & feels like debt, in the form of equity release, probably having spent many years paying down a mortgage, may also be a bitter & alien pill, albeit perhaps a sensible one – for an economist.
Hammersmith has the 5th highest median house prices in London. It’s slipped one place since 1995, the graph adjacent is sorted by 1995 prices, when it was 4th, which may surprise you. 1995 prices are shown as the tiny blue bars.
Whatever nuances there are between H&F and anywhere else in town, property inflation has been huge in absolute terms, as shown in the second graphic, and much greater than elsewhere in the UK. H&F is middle of the range at 700%, explaining its 1 place fall in the above race, but the lowest priced boroughs in 1995, such as Hackney and Newham have seen the largest rises in a rather misplaced levelling-up exercise, many would call gentrification. Examine the demographics, and you’ll see the volume of younger people who have moved to those places on an affordability basis, if no other. By contrast, average incomes have doubled in the same period but have been static in inflation-adjusted terms, meaning housing is 350% of the cost 25 years ago (c.f. ratios below), although interest rates are a lot lower if you’re borrowing the money. If you’d been what used to be called prudent – and saved for it – bad luck. Prudence was made homeless a while ago.
Our elders tell us that sky-high London property prices were ever so. In the 50’s and 60’s, newbuilds were cheaper than period properties; in the age of the Space Race and (if only they’d known it) mid-century modernism, bright shiny and new was still less popular than ‘period’, and while affordability continued to decline, property aspirations remained as conservative and static as life’s DNA, a fact confirmed in the government’s recent Design Guide.
The average property price / earnings ratio in H&F stood at 18.2 in 2020, in the same general range as boroughs nearby (except K&C where it’s double that!), vs. 7.8 average in England. H&F is 6th highest in London. Note that borough-wide ratios vary significantly, and often seem distorted by disparities, typically North-South, and are much higher for first time buyers – read on.
Similar to our recent interactive work, the Office for National Statistics has been developing some interesting interactive maps to display this kind of data, a couple of which we have embedded below.
Start by exploring the average interactive historic price / earnings ratio map below – select “Hammersmith and Fulham” in the “select an area” menu and use the ⏪ and ⏩ buttons to scroll the years back as far as 1997, when the ratio was only 6! It shows the ratio widening alarmingly in the years after recovery from the banking crisis with cheap money being thrown at the economy, but has started going in a slightly more sane direction recently. The same period was marked by significant £ Billion+ M&A activity around major builders, some operating locally, such as Linden – taken over by Galliford Try – with a general doubling of profit margins from around 9 to 20%+. In a world of little effective competition, and the consequent appearance of some cartel-like behaviours including land-banking, it’s no wonder newbuilds are so ambitiously priced, and consequently ineffective at addressing the housing shortage.
Secondly, here’s a powerful and simultaneously alarming map that combines current local property prices with earnings and interest rates to demonstrate, in significant detail, ward-by-ward (or strictly MSOA, like those COVID maps), what it costs to buy in a given area. Enter a post code or zoom/drag/click on an area to view the costs.
Then pause for a stiff drink, while you take in the fact that a Prime-Ministerial salary is required to buy in significant areas of Hammersmith (but is possibly insufficient to refurbish a flat -Ed.), and that, cheek-by-jowl, there are often 2:1 ratios adjacent; so-called affordability left the borough some years ago. Knowing London, more detailed data would doubtless highlight even starker contrasts. Also of note here are the major impediments shown, in the form of a large deposit and stamp duty, that will please HMRC, but representing just 1.5% of tax take, only scratch the national debt, with much more significant downsides to social mobility.
Hammersmith Bridge with 55-storey Park Royal Southern Gateway, the tallest residential towers in London, looming. There are already several substantial 20+ storey tower blocks, yet (here) invisible. These new monsters despoil the skyline.
As the Hammersmith Society approaches pensionable age itself next year, we continue to campaign for decent and affordable housing with amenity space, and against ugly overbuilding that is often used as an excuse of an attempt to address the housing crisis with overpriced, yet undersized cookie-cutter flats designed not for people and living, but for exploitation of people with few better choices, or worse – pure investment gain.
Sometimes the effect of these blocks is even unwittingly imposed from outside the borough – as shown above – but we see rather too much of this kind of thing in recent overbuilt developments in and around White City too, sufficient to be nominated for this year’s Wooden Spoon Award. As we publish, we’ve received news of a planned 170m tower development at Westfield (that’s 50 storey), another 1760 flats, as if enough weren’t already being built in the “White City Opportunity Area”. We remain disappointed that councils, including to some extent our own, but with Ealing a particular local blackspot, generally don’t mandate better human-scale standards through more effective planning policies, local development plans with proper and effective local consultation, and enforcement. Rather than be accused of Nimbyism, we hope we might play a positive part in improving this situation through the Design Guides of the proposed planning reforms, as well as invoking Policy D9 of the new London Plan that allows definition of “tall” buildings and their locations to be set locally.
What is hard to fathom is how the much-derided developer viability arguments for taller and denser developments are still accepted as the cost of providing the Mayor’s 35% “affordable” housing as part of them, against these spiralling ratios and evident profit increases. Labour and material costs haven’t increased that much and unlike conventional housebuilding, the land a tower is built on must be a trivial proportion of the cost – traditional measures such as residual valuation are largely irrelevant. The logical conclusion is that the calculations presented are unaudited fake news, or that the developer’s stated costs are incompetently high – neither of which are good news for housing. We won’t start on multiple cladding scandals caused by design and workmanship as shoddy and uncontrolled as the prices are high, borne of Grenfell just next door, and which seem to fall, for unfathomable reasons, disproportionally on those least able to deal with them, rather than the long-departed construction company responsible.
We’re also not going into great detail on the environmental costs of concrete-based construction, in rude health after some retreat, despite declarations of climate emergency, which should alone be enough to allow the council to see off many of these substandard proposals – if such declarations were enforceable & enforced. It should be enough to remember that about a kg of CO2 is released for each kg of Portland cement made, making it 8% of the worlds energy consumption (2 to 3x the eco-warrior’s favourite bête noire of aviation). There is at least ongoing research to improve this by various methods including use of other materials in concrete, and of course recycling, the most effective way of which is to not to demolish and rebuild in the first place !
Recently we performed an analysis of the TfL development (you read that correctly), comprising step-and-repeat towers up to 25 storeys, already approved for Bollo Lane – again by Ealing Council – just outside the borough but destined to loom over us. Despite the self-evident blot on the landscape, the actual housing density created will be only marginally more than that achieved well over 100 years ago at the world’s first council estate, the Boundary Estate in Shoreditch, achieving 38,000 / sq km, and that’s after reducing the occupancy to 2 per flat – around half the original design intent which achieved a higher density than TfL.
These flats are now understandably DesRes, many buildings are listed, as is the central bandstand at Arnold Circus, good enough to star on film and TV regularly.
Since COVID, the tables may be turning, some lenders are baulking at over-inflated newbuild pricing, with 700,000 foreign-born residents said to be moving out of town, and a proportion of Londoners thinking or doing the unthinkable, and considering the same, especially those stuck in Barnes with no bridge to cross !
Those of us lucky enough to live this side of the river and close to parks can think of nothing worse, but we’re privileged. For many, the draw of increased space and mobility with fewer strangling rules on what you can/can’t do, how you can travel, plus the newfound commuter-less home-office make an attractive gambit. There are fewer reasons to put up with the Congestion and it’s accompanying Charge, bankrupt TfL’s lack of focus on the day job as efficient, cost-effective transport provider – highlighting its evident shortcomings by trying to sell cycling/walking back to us, as if it had invented our own two feet – bus strikes and diversions into property speculation (remember Earls Court Partnership Limited under a former Mayor?) – on top of the already outrageous cost of living.
As we head to Mayoral elections, if we are to build back better, then where better to demonstrate Mayoral leadership than Hammersmith Bridge, showing the way with fewer 500+ page plans & wordy strategies, and rather more action on steering London towards a more liveable city, with a mixed economy for ordinary people and ordinary businesses. A transfer of the rising tide of decrees and constraints from the population, and onto overambitious developers, to begin to put a lid on living costs; an end to often disastrous opportunity areas, (including the local shambles that is OPDC, on top of previous shambles, Earls Court), which appear to be more opportunities to build 55-storey investment vehicles than opportunities to enable affordable human-scale development that we want. Suddenly Malcolm McLaren’s bid 20 years ago, championing creativity, housing and transport, looks almost sensible.
More reading: The Property Lobby, by Bob Colenutt, 2020.
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