London house prices falling at fastest pace since GFC

By Leith van Onselen

From Bloomberg comes news that London’s house prices are falling at their fastest pace since the Global Financial Crisis:

Early data point to home values in London declining 2.7 percent in September from a year earlier, the most since 2009, according to Acadata and LSL property Services. A 0.7 percent fall in August marked the first negative reading since 2011 as sellers in some of the city’s most expensive boroughs, including Westminster, Wandsworth and Hammersmith, were forced to cut prices…

In London, values fell for a sixth consecutive month. If the provisional estimates are confirmed, the average price of a home in the capital was less than 582,000 ($773,000), the lowest since the end of 2015…

The downbeat picture was confirmed in a separate report from Rightmove Plc, which said asking prices in London fell an annual 2.5 percent in October. While they rose 3.1 percent on the month, driven by owners of more expensive properties, achieving these prices is far from assured as buyers now have more choice, according to Rightmove director Miles Shipside…

This looks legit, with Academetrics – considered the most accurate index since it comprises all sales lodged with the UK Land Registry – also showing that London’s house prices had fallen in the four months to July (latest available):

With London’s annual price growth about to turn negative as at July:

[email protected]

Unconventional Economist


    • I’m not sure that there is such a theory, it certainly isn’t supported by the historical record. What is true is that the UK urban planning system (and any other similar system) ensures that the long term trend will be relentlessly one of worsening housing shortages, crowding, illegal accommodation and homelessness; and along with this a rising price of land per square foot. The price volatility downwards is always lower than that of markets like Spain where they somehow managed to have an oversupply boom along with the price bubble. UK urban land prices always end the downwards adjustment higher than they were in the last phase.

      Cheshire and colleagues from the LSE have been tracking the price of urban land in the UK relative to benchmark US cities that have price stability because of an absence of regulatory land rationing, and by 1984 the land price inflation in UK cities since the 1947 Planning system, was a FACTOR of 100 to 325. By 2006 it was 120 to 700 and more recently it is 120 to 900.

      This is not to argue any virtue in having such a system, far from it. It has to end very badly eventually, it is like a cancer on the economy, that has to kill the economy eventually.

      • so Phil, what you are really saying is that this recent movement is really about demand not supply then? For me it’s all about internal european migration, people are going home is my deduction.

      • Thanks Phil, another informative post.
        Can you confirm that reductions in population do not equate with a drop in land prices in cities with significant regulatory land rationing. In other words, the price of land (and therefore housing) in these cities stays high, regardless of increases or decreases in population.

      • In other words, the price of land (and therefore housing) in these cities stays high, regardless of increases or decreases in population.

        Seems to require a country with Japan’s demographics combined with Australia’s house price performance. Could be a long search.

    • Indeed, the UK’s decades-long experiment with urban planning, provides examples of cities where even when the population has declined, the prices of urban land have continued to inflate. For example, Liverpool’s fortunes have been very similar to Detroit’s, population loss, industry loss, chronic unemployment – and land prices in Liverpool have generally tracked at around 100 times higher than even the growth cities in the US heartland and south, let alone Detroit and rust belt cities.

      Every “other factor” that people argue is important: population growth, interest rates, capital gains taxes (or not), negative gearing, looseness of credit, government subsidies – is properly expressed as part of an equation INSIDE a pair of brackets. OUTSIDE the brackets, is “supply of land for urban growth”, and a binary factor. If the land supply is truly elastic, the binary factor will be zero and nothing else will cause any harm (economic rent, speculative frenzies, etc).

      I know of absolutely nothing that has been done in terms of changing any of the factors “inside the brackets”, to improve the social lottery that is housing affordability. Everything you do has some other flow-on consequence that merely shifts the impact of regulations or subsidies. There continues to be injustice and wealth transfers and even cyclical volatility can only be contained to some extent. For example, even in nations where there is no mortgage credit at all for most people, and housing is mostly bought with savings and family assistance, the de facto median multiples in the formal housing market are still over 10 (and a majority live in illegal slum housing), and there is still cyclical volatility correlated to land prices.

  1. Um… trade shock…

    Matters not if its just an expectation or sufficiently underway, that RE is a – signal – does not factor in the depth of how this will playout. Say the pound takes it on the nose [England has to pay more for imports], incomes track the broader asset devaluation, tax base, et al.

    • that may be the start Skip, but the Brits are a highly resilient people and I’d expect them to bounce back pretty quickly. So the markets being a discounting mechanism, just “how far into the future are the markets discounting?” is the question in my mind.

      • Trav…

        England can not feed itself, pound goes down, splat….

        disheveled…. do you have any clue how many business are relocating, the customs dramas, and on top off that and more how much England is going to be on the hook for…. again trade shock equals bad times not good nor predecessor too….

    • Still not a nice feeling for someone who took out a mortgage for an IP in the last 21 months (with the exception of the people who bought the dip just after Jan ’16) and have been paying interest without seeing their investment appreciate.

    • Exactly, that was what I was saying above. The trend long term has been so relentlessly upwards thanks to the Poms urban planning system, that even after the cyclical downturns, the urban land prices are falling to, say, “only” 300 times as inflated as they could be (versus a benchmark) versus 500 times at the peak.

  2. An American perspective from Wendell Cox … illustrating why those on lower incomes are driven out of highly inflated housing markets …

    Local Rules and Affordable Housing Options | Builder Magazine | Policy, Housing Policy, Local Markets, Policy and Regulation

    … extract …

    … Demographer Wendell Cox has this different take on the struggle to reconcile ideology, city planning, economics, and community.

    America’s most highly regulated housing markets are also reliably the most progressive in their political attitudes. Yet in terms of gaining an opportunity to own a house, the price impacts of the tough regulation mean profound inequality for the most disadvantaged large ethnicities, African-Americans and Hispanics.

    Cox’s point is that there’s a sharp correlation between politically progressive citizens, intensely regulated land-use and zoning, and the lack of affordable homes for people who’ve been treading water economically and socially for more than a decade. The data speaks for itself.

    Housing inequality by ethnicity is the worst among the metropolitan areas rated “severely unaffordable.” In these 11 major metropolitan area markets, the most highly regulated, median multiples (median house price divided by median household income) exceed 5.0. For African-Americans, the median priced house is 10.2 times median incomes. This is 3.7 more years of additional income than the overall average in these severely unaffordable markets, where median house prices are 6.5 times median household incomes. … read more via hyperlink above …

    • See my comment above about Liverpool. When you have an urban planning system rigging the market, well yes, if you have a city with shrinking population, its urban land prices may well be “only” 100 times as high as a benchmark such as a southern US growth city, which compares relatively “favourably” with the growing UK cities where the factor is 300 or 500.

      So of course the solution is to shrink the population, urban planning is just a peripheral issue being beaten up by a few die-hard libertarians (SNORT)

      • There is no sign the population of London shrank over the last 12 months, and the role of urban planning is not a point of difference between London in 2014 and London in 2017.

      • Kinda correct. The fact that London’s land prices are at the high end of the “inflation versus benchmark” reflect London’s particular “demand” relative to other UK cities. The factor for London has been over “900”, versus “only” 300 for cities like Manchester and “only” 100 for cities like Liverpool.

        If you want to ignore that the land could be 100, 300 or 900 times cheaper, well yes, then look at the demand side only. Even then there is a lot of irrational speculative pressure that renders the fluctuations far wilder than would be preferred by people who would like to be able to plot nice correlations with population growth, interest rates, etc etc. I doubt that anything much can be quantified that accurately when the market has been so totally screwed up for so many decades.

  3. Global CB liquidity being squeezed …. City jobs under threat … future of Britain uncertain.

    Hardly a frigging surprise.