Increased activity in London equals better news for the wider economy
The London housing market often marches to its own beat and while what is happening in the capital is not always reflective of the rest of the UK, its apparent revival is a good sign.
The pandemic turned the housing market on its head, with demand for country living rocketing while demand in the cities – London in particular – eased.
That however could be a pattern in reverse. For example, some of our busiest postcodes are currently in London, which is encouraging, especially in the face of rising interest rates, inflation, and a cost-of-living crisis.
London’s position as the economic hub of the UK means when confidence is high in the capital – and its housing market – it generally equals better news for the wider UK economy.
Several meanders encountered on the road to recovery
The post-Covid move back into the capital has perhaps not been as speedy as some had predicted but nevertheless it is picking up pace. As the reality of a quiet life – and no Deliveroo – sets in for former city dwellers, we are seeing a return to city living.
Recent figures from Rightmove show buyer competition in London was up 35% in May, compared to the same time last year and rental demand up a staggering 140%. This is also reflected in rental prices, with the capital reaching a new record average asking rent of £2,257 per calendar month in the second quarter of 2022. Annual growth in asking rents in London is now at 15.8%; the fastest ever rate of any region recorded by Rightmove.
As we move further into 2022 and the return to office life picks up, we could see demand for both purchase and rentals increase further, both of which could impact house prices.
Continued growth amongst challenges
Although London experienced house price growth of 7.4% in the year to July 2022, this represented the lowest house price growth out of any UK region according to Rightmove.
Of course, when we talk about the London market, this too has its sub-sections which can often be contrasting. The prime market in particular has its challenges. Prime central London house prices are up 3.3% on last year. Although this marks the highest annual growth seen since September 2014, they are still down 17.6% in value on their 2014 peak, according to Savills.
The war in Ukraine and the subsequent drop off in foreign buyers is having an impact at the top end of the market and without a large influx of foreign investors, its recovery is expected to be slow.
Stock shortages continue to drive prices
Just like the rest of the UK however, the prime London market also suffers from a lack of stock and this should ensure no dramatic slide in prices.
Almost half – 45% – of Savills agents in prime Central London and 42% in outer London cited a lack of stock in Q2, down from 64% and 68% in Q1.
Even with hybrid working, there is a strong desire to be close to the office, Savills reports, with Tube travel reaching a post-pandemic high in June; reaching 60% of the pre-pandemic average.
This suggests there is still some way to go before the London market settles back into what might be the new norm. Setting aside the lack of affordable rental properties, the mood and consensus is that the capital will continue its recovery at a steady but slow pace for the reminder of the year.
London represents a microcosm of the UK market as a whole
Savills is predicting a 6% rise in all London prime property this year and 3.5% in the mainstream London markets.
The performance of the capital’s housing market always draws attention, which can at times be a cause of frustration for those outside of the big smoke. However, when the London housing market is in the doldrums, this can signal wider economic issues, so a return to confidence in this part of the country should be welcomed; especially in the current economic climate.
Simon Jackson is managing director of SDL Surveying
First published by Financial Reporter