What is happening in the UK housing market?

This morning has brought news to bring the current winter chill into today’s policy meeting for the Bank of England. This is that there are more signs of declines in London house prices as the Financial Times reports.

High-end homes in central London are selling at the biggest discounts in more than a decade as sellers continue to set ambitious prices even as the market declines.

Let us look further as of course for most of the period even the concept of a discount was a mirage.

In 2017 homes in the most exclusive postcodes were sold at an average discount of 10 per cent or more on their initial asking price, according to figures from LonRes, a research company. The gap between what buyers will pay and what sellers ask for their homes in this segment of the market is now greater than it was in either 2008 or 2009, following the financial crisis.

The areas most affected are shown below.

LonRes’s data cover London’s most exclusive districts, including Kensington and Chelsea, as well as prime parts of the capital extending from Canary Wharf in the east to Richmond in the west and Hampstead in north London.

Actually though if we look further we see that the position seems rather similar now across London.

Outside the most expensive “prime central” areas, discounts to initial asking price stood at just over 9 per cent — the highest level since 2009.

As ever we see that estate agents have their own language as we note “prime central” is a further refinement to “prime”. Also whilst the situation is now similar so far the more exclusive areas have been hit harder.

Prices per square foot in prime London have fallen 5 per cent since their 2014 peak while in the most expensive “prime central” areas they are down 11 per cent.

Also there are fewer transactions taking place.

Transaction volumes fell across central London in 2017, with the number of properties sold down 3.6 per cent over the year as fewer homes were put to the market.

Although care is needed as how many homes are sold in central London as a 3.6% fall may not be that many. It would appear that there is one remaining source of demand.

Foreign buyers, who are attracted by favourable exchange rates between sterling and most currencies, were an exception.

So presumably not Americans then if we look at the exchange-rate.

Ghost towns?

This issue reminds me of this from the Guardian at the end of January.

More than half of the 1,900 ultra-luxury apartments built in London last year failed to sell, raising fears that the capital will be left with dozens of “posh ghost towers”………The total number of unsold luxury new-build homes, which are rarely advertised at less than £1m, has now hit a record high of 3,000 units.

If you are wondering what ultra-luxury means?

The swanky flats, complete with private gyms, swimming pools and cinema rooms.

Cinema rooms are a new one on me. But as to the problem I don’t know about you but the £3 million price tag gives quite a clue.

Builders started work last year on 1,900 apartments priced at more than £1,500 per sq ft, but only 900 have sold, according to property data experts Molior London. A typical high-end three-bedroom apartment consists of around 2,000 sq ft, which works out at a sale price of £3m.

I guess such numbers distort your view of reality as I note the definition of affordable being used here from Steven Herd.

“We need ‘affordable’ one- or two-bedroom apartments priced at £500,000.

What we are getting seems instead to be more of the same old song.

Molior says it would take at least three years to sell the glut of ultra-luxury flats if sales continue at their current rate and if no further new-builds are started.

However, ambitious property developers have a further 420 residential towers (each at least 20 storeys high) in the pipeline, says New London Architecture and GL Hearn.

My personal interest in Nine Elms as it is close to me – 25 cranes now between Battersea Dogs Home and Vauxhall visible to someone on a Boris Bike – makes me read the bit below and wonder how such a good development can be made of the wrong properties?

Herd says the Nine Elms development, near the new US embassy in south London, was one of the best redevelopment schemes in Europe but consisted of “the wrong properties that Londoners don’t need”

As ever boom seems to be turning into dust as we look back to the lyrics of The Specials from three decades ago.

Do you remember the good old days
Before the ghost town?
We danced and sang,
And the music played inna de boomtown


The downbeat view of the UK housing market started today from the view that London is a leading indicator or if you prefer the canary in the coalmine. It was added to by the latest data from Halifax Bank of Scotland.

On a monthly basis, prices fell for the second consecutive month in January (by 0.6% following a 0.8% decrease in December)……….House prices remained unchanged in the recent quarter (November-January) from the
previous quarter (August-October).

Thus we see that anything like the same trend will mean that we will see a quarterly decline when we get the February data. Also the year on year growth is fading away.

Prices in the last three months to January were 2.2% higher than in the same three months a year earlier, although the annual change in January was lower than in December (2.7%).

Finally it is down to a similar level to wage growth although of course we need it to be below it for quite a sustained period to see any real improvement in affordabilty as for now thinks have simply stopped getting worse.

Looking ahead there was a worrying sign for estate agents and the housing industry at the end of 2017.

Mortgage approvals for house purchases ended the year with a sharp fall. The number of
mortgage approvals – a leading indicator of completed house sales – fell by 5.7% month on
month in December to 61,039, the lowest level since January 2015. Over the year to December
2017 total mortgage approvals were 2% lower than in the same period in 2016.


There is a fair bit to consider here as we only get partial glimpses of the market. What I mean by that is that it is estimated that 30%- 40% of property purchases these days do not involve a mortgage. Thus places like the Halifax only see 60/70% of the market. It is also true that the Nationwide numbers were more upbeat last week. But we do see signs of ever more stress in London and it would be logical for lower real wages to be having an effect.

We need some falls especially in London in my opinion as prices became ever more unaffordable as intriguingly even Professor David Miles admits in VoxEU.

Average house prices in the UK have risen much faster than average incomes over recent decades. Relative to average disposable incomes, houses are not far off three times as expensive now as they were in the early 1980s; relative to median incomes, they have risen even more.

I say intriguingly because missing from the piece and his description as a Professor at Imperial College is his role in all of this . You see he was a policymaker at the Bank of England from 2009 until 2016  who could be described as an uber dove. He even wanted to ease monetary policy just as the UK economy was picking up in 2013. Yet all the monetary easing seems to be missing from his explanation of higher house prices. Is he not proud of the consequences of his actions?


What can we expect next from UK house prices?

This morning has brought us an update on what the UK establishment treat as a not only a bell weather but also a cornerstone of economic policy which is of course house prices. The Halifax which of course represents Lloyds Banking Group which is a big player in the mortgage market so what is happening?

On a monthly basis, prices also fell by 0.6% from November following a 0.3% increase in both October and November; this is the first fall since June 2017.

So the headline catcher is that house prices fell in December however these numbers are a pretty erratic series so let us look for some perspective.

House prices in the final quarter (October-December) were 1.3% higher than in the previous quarter (July-September), down from 2.3% recorded in October and November,

So we move from a recorded fall to an apparent slowing which is backed up by a comparison of the annual data.

Prices in the last three months of 2017 were 2.7% higher than in the same three months a year earlier although the annual change in December was lower than in November (3.9%).

Another way of putting the apparent slowing is that at this time last year the annual rate of growth was 6.5% so there has been a decline which we expected. As it happens the annual decline is very similar to the 2.6% reported last week by the Nationwide Building Society so there is some confirmation there. However the pattern has been unpredictable as for example there was something of a rally in the autumn of 2017 in the Halifax data which was against the trend. For those who want to know an actual price or at least an average one here it is.

The average price of £225,021 at the end of the year is 2.4% higher than in January 2017 (£219,741).

The problem comes when we look at a comparison of such a number with what someone is likely to be earning. Such reports come with estimates themselves which in both cases ( Nationwide & Halifax)  have pretty much returned to the pre credit crunch highs or something of the order of a ratio of 5.5. However if we look at the official average weekly earnings figures and (perhaps generously) multiply by 52 we see that the answer of £26,520 requires multiplying by around 8.5 times to get the average house price.


For all the discussion of change this has been quite stable as this suggests.

Monthly UK home sales exceed 100,000 for the eleventh month in succession. Sales have remained above 100,000 in all months of 2017. In November they reached 104,200, the highest monthly level since March 2016……… For the past
twelve months mortgage approvals have been in the narrow range of 64,900 to 69,500.

The main change is that fewer seem to want to sell.

Turning to supply, new instructions to sell continued to deteriorate at the headline level and has now
fallen for 22 consecutive months – the worst sequence for close to eight years

Ominous perhaps.

What does the Halifax think about 2018?

Overall, we expect annual house price growth nationally to stay low and in the range of 0-3% by the end of 2018. The main driver of this forecast is the continuing effects of the squeeze on spending power as inflation has outstripped wage growth and the uncertainty regarding the prospects for the UK economy next year.

The first issue is that even they do not expect much if any which is revealing although their reasoning seems odd. For example unless the commodity price rises I looked at on Friday continue UK inflation seems set to fade especially if the UK Pound £ remains around US $1.35. Also whilst economists continue to write about uncertainty the main population sees an economy growing consistently if not that fast. Some of course will have fears and part of that will be Brexit related but currently economists are projecting their own “monsters of the id” on everyone else.

London Calling

This continues to provide what may turn out to be a clarion call. From The Times over the weekend.

Almost half of the homes on sale for between £1 million and £2 million in London have had their prices cut, with average reductions of £142,000, rising to nearly £900,000 in extreme cases.

Presumably not the £1 million homes seeing price cuts of nearly £900,000! It is not just a London thing as I note I may not be the only person who likes a slice or two of Christmas cake.

Across Britain one in three sellers reduced their asking price last year, the highest proportion since the double-dip recession of 2012. However, sellers with homes in the “marzipan layer” — those worth less than the super-prime stock of central London (the icing) but more than most of the rest of the country (the cake) — are making the biggest price cuts.

Some of the effect here has been the rise in Stamp Duty on higher-priced properties but I note that Henry Pryor is reporting a change in psychology.

But almost all the buyers are discretionary and feel there is no harm in waiting. With an uncertain Brexit around the corner, buyers feel they can sit tight or rent and still be no worse off because prices will be even lower next year.

A change in psychology may be enough in itself although real falls also usually have surveyors reducing valuations. Of course however there needs to be some perspective as some of the comments suggest.

Heck even my parents house is now only worth 98 times what they paid for it !

(Down from 100 times before the referendum) ( Anthony Morris)


So overpriced homes in London are now marginally less overpriced. I think we’ll survive this somehow. ( John B )


For those unaware this is on the edge of what is regarded as the City of London as well as being a big train and tube station. It also had a development described in the advertising like this.

The ad portrays a rich couple embarking on helicopter rides, being serviced by an astute butler and sight-seeing the capital in a Bentley. The couple also admire a sculpture of the building they have just acquired a penthouse suite in. ( h/t @econhedge and The Drum)

How is that going? From Bloomberg.

An investor who agreed to purchase an apartment at the ritzy One Blackfriars project on the banks of the River Thames is offering the two-bedroom home on the 20th floor for 1.8 million pounds ($2.44 million), more than 22 percent less than they agreed to pay for it in 2013.

Also Bloomberg has missed the currency angle as if the investor is from Asia there is likely to be a currency related loss to add to this.


Actually the main trend in the UK housing market has been something of a realignment of house price growth with both wage growth and economic growth. That is good although things not getting worse is different from things getting better. As any sustained surge in wage growth has escaped us in the credit crunch era as we mull it rumbling on at circa 2% per annum it means that more affordable homes requires lower house prices which of course is the opposite of official policy.

As for London it is being affected by international trends where capital cities are now seeing house price falls rather than rises. There will still be overseas buyers but fewer of them and thus some air seems certain to come out of the bubble. There is still an extraordinary dislocation between current prices and the finances of the vast majority of Londoners.

Philippe Coutinho

Football fans like me were subject to another burst of transfer fever over the weekend. But there is an economic effect and if we look at the initial payment of around £106 million then there are clear effects. Firstly a boost to UK exports and thereby to economic output or GDP ( Gross Domestic Product) accompanied by a boost to the exchange rate against the Euro. Over time there will be a smaller flow in those directions as the amount heads up to a maximum £142 million. In addition to this there is presumably also a boost to GDP by the purchase of Virgil Van Dijk for around £70 million by Liverpool as they spent some of the expected proceeds.

Such numbers are always estimates in the football world  but I am intrigued how the national accounts will account ( sorry) for this, as for example do they deduct the price paid by Liverpool for Coutinho? I cannot move on without pointing out that there are clear signs of inflation here as whilst Countinho has improved as a player at Liverpool not by anything like the price change.

Also whilst I am on sporting matters congratulations to Australia on their Ashes victory.




What is happening to house prices in Central London?

There has been a fair bit of news on the UK housing market in the last 24 hours and some of it has struck rather close to home for me anyway. Last summer I reported that there were signs of trouble in the developments at Nine Elms which for those unaware of the geography is just south of the river Thames between Battersea and Vauxhall. It is an area which is a large building site as it is being redeveloped wholesale and will include the new site for the American embassy. It extends at one end to Battersea Power Station where recently there have been ch-ch-changes too.

Battersea Power Station

This morning City-Am has reported this.

More than 50 luxury flats on sale at London’s iconic Battersea Power Station have had their prices slashed since January, with some seeing discounts as large as 38 per cent in a sign that wealthy foreign investors are scrambling to desert the scheme.

There is more than a little hyperbole in that quote so let us examine the basis on which these claims are being made.

Property firm Propcision has found that 197 properties have been listed for resale by the developer’s in-house agency, Battersea Power Station Estates, since last year. Around half the properties have had a price reduction at some point since the start of the listing with 76 of those units being reduced since the third quarter of last year.

This adds to the mood music created by the London Evening Standard earlier this week.

How worried should investors be at the wobbles in Battersea’s luxury flats market? For the FTSE 100 property boss discussing the matter over his turbot the other day, very.


So concerned was he at the speculative bubble inflated by off-plan buyers in the sky above the Thames that it was reminding him of the monster crash of the early Nineties.

In particular, he remembered the de luxe Point West development in Cromwell Road, which went bust, unfinished, in 1990, triggering a flurry of other luxury failures.

There is a symbolism here as for those too young to remember or indeed abroad the early 1990s saw something which will chill every central banker to their spine which is sustained house price falls in both London and the wider UK. Or to put it in musical terms “The Only Way Is Up” by Yazz was replaced on the turntables by “I keep on fallin'” by Alicia Keys.

There is much to consider here because if I take off my local residents hat there are two powerful economic forces at play. Before I completely take off my local residents hat Battersea Power Station looks very impressive and indeed stunning from the other side of the Thames and is an enormous site. Of course Pink Floyd got their long ago when they flew a pig above it for an album cover.

Currency Wars

As so much of central London property has gone to foreign buyers the issue of exchange rates is as important as house prices and indeed can be more important. If we consider the case of Chelsea then the number of Russians moving in has led to it receiving the nickname of Chelski! However we learn a lot about the current state of play from the exchange rate. You see up until early 2013 less than 50 Roubles invariably bought you a UK Pound, whereas even after the recent dip it now takes 103. So if you are a Russian then the price of a property in the UK has doubled in your currency. This has two consequences, new buyers have to dig a lot deeper into their wallets or purses whereas existing buyers are in a large profit should they take the money home. Some must be tempted.

If we move to Battersea Power Station then many of the buyers were from Malaysia. here too there have been currency swings. In early 2013 some 4.7 Malaysian Ringits bought a UK Pound whereas in the autumn of 2015 it took 6.6. Since then there has been another swing as it has dropped to 5.8. This leaves us with two main scenarios.

  1. Some may want to book profits which may look worth taking in a volatile world for both property prices and exchange-rates, especially as both no longer look one-way.
  2. Some will have only paid a deposit and may now therefore have face of be facing losses. In their own currency the property is now much more expensive and they want to move on. They may also be facing losses on the property itself.

My London Homes Kuala Lumpur has offered its view on Twitter.

Price reductions/corrections happen regularly with new build schemes as owners speculate. No need to panic!!

Perhaps more global tours and parties are required.

Battersea Power Station is embarking on a worldwide tour in October and November 2014 to 13 cities in 11 countries….. From Friday 31 October, representatives from the shareholders and BPSDC will host exhibitions in London, Kuala Lumpur, New York, Dubai, Paris, Los Angeles, Milan, Tokyo, Beijing, Singapore, Hong Kong, Shanghai and Doha.

I doubt whether Kate Beckinsale comes cheap although to be fair she did look stunning in the pictures.

Another factor in the equation is the way that more countries are imposing currency controls or tightening what they have. Thus for those who wish to buy in London it may not be as easy as it was.

What about Help To Buy?

That does not apply right now to most places in the Power Station area as (h/t @econhedge ) the system for loans has a limit of £600,000 and the prices are too high for that. Of course it does offer a type of back stop at lower levels. However the 89 price reductions listed by Propcision since January do now include some below the limit although not this one.


What we are seeing is a consequence of two factors. Firstly some of the trends which favoured the UK have faded and the volatility of world markets especially emerging market ones is having an impact. If you like it is a consequence of the currency war concept. Also as prices have risen in both UK Pounds and the currencies of many overseas buyers many may simply have been priced out. Some “punters” may have singed fingers if they only paid a deposit.

Others may well turn up and there is a base provided by the Help To Buy schemes but that is a long way below quite a few of the prices!  If we now widen the issue we see that  central London is no longer driving prices higher in the surrounding area and some of it has as a minimum indigestion and price falls. How will our establishment respond? As after all economic policy is already heavily weighted towards the housing market and the banks. The Bank of England Underground Blog confessed this only this morning.

That means the effect of QE2 on asset prices was still notable, for example, we estimate the extension led to a 5% depreciation of the euro against the dollar anda 6% increase in equity prices.


The UK establishment has long tried to ram this down our throats so well done to the UK Statistics Authority. I was particularly pleased to see it echo two of my points.

  • ONS needs to take more time to strengthen its quality assurance of its private rents data sources, in order to provide reassurance to users about the quality of the CPIH.
  • There is some disagreement among users about the concepts and methods that ONS uses to measure Owner Occupiers’ Housing costs within the CPIH. ONS needs to do more to explain and articulate its own judgements about the concepts and methods that it uses, and could engage more positively and openly with a wide range of users, including interested users that have a range of opinions not necessarily in accord with ONS’s own views.

I have posted my thoughts at the Royal Statistical Society Statsusernet website and engaged with the thinning numbers of supporters for CPIH on twitter which some of you may have followed. As is invariably the case the economics editor of the FT Chris Giles was on the other side of the case although his defence of what he was part of approving was somewhat novel.

CPIH is used by almost no one

Also Professor Tony Yates who used to be at the Bank of England joined in the debate although as far as I could tell he was mostly debating with himself.




Generation Rent in London is facing a Tube Map of trouble and woe

There appear to have been some changes in the Financial Times Money section which seems to have something of a road to Damascus moment. Let me show the headline.

London’s overheating property market and lack of affordable housing is endangering its competitiveness

Okay so what has driven this? Well this map of monthly rents for a one bedroom flat from Find Property has driven this.

It does expand if clicked on but in case you have difficulty seeing it then I have put a link below where you can magnify the picture.


What do we learn?

Let us first check through the definitions where monthly in fact means every four weeks so the numbers are in fact even higher than you may first have thought. The detail is below.

The median price is calculated using the prices of currently available properties within a 1km radius of the station.

The extremes are Hyde Park Corner which blasts in at £2920 per month and the eastern end of the District Line at Elm Park for £552 a month. In other words the vast majority of even one bedroom flats look rather unaffordable especially if we remind ourselves of average wages in the UK.

average total pay (including bonuses) for employees in Great Britain was £496 per week before tax and other deductions from pay

Those in the finance sector pull the number higher in London but even £637 per week can look a bit thin compared to some of the rents especially if we recall that they are for one bedroomed properties.

On the issue of one bedroom properties then one in Clapham so not far from me has been attracting some headlines and you will soon see why. Apologies for the implied profanity

I have literally just been shown a bed under the stairs for £500 a month. F you London! !?

In a situation like this there is always a danger that this individual instance is a spoof or PR spin but it has hit a chord. Back in the day (just over 20 years ago) I paid £300 per month for a double-bedroom when I flat-shared in Clapham.

What does the Financial Times tell us?

Crunching the numbers poses more than a few questions about how people afford this.

Barring these and a few others, for the 250-odd Tube stations in London, only a quarter have one bedroom flats costing £1,000 a month or less to rent. As you might expect, these locations are all concentrated at the extremities of lines, meaning a long journey and £225 a month for a zones 1-6 Travelcard.

So if you save on renting costs you find yourself adding to your travel costs and of course start to spend an increasing portion of your day  commuting. Some of the London Tube lines are rather slow for longer journeys as the lack the express trains that New York has for example.If you are Mr or Ms Average then this is what you face.

Across the capital, the average rent for a one-bedroom flat within walking distance of a Tube station works out to £1,327.

Even if you are a worker in the finance industry we are looking at around half your wages and of course they are before tax whereas the rent is actually paid out of post tax income. Time for some Lunch Money Lewis.

I got bills
I gotta pay
So I’m gon’ work, work, work every day

Rather oddly Dido was rather prescient if very harsh on the subject, who would have thought it back in 2003?

But if my life is for rent and I don’t learn to buy
Well I deserve nothing more than I get
Cos nothing I have is truly mine.

We do get a bit of cheerleading for the Buy-To Let industry.

Buy-to-let landlords reading this column should congratulate themselves for having made a great investment.

Actually I do not wish anyone who rents – well apart from the Rackmans and their ilk – any ill as they provide housing and people require that. My issue is the way that it is organised in the UK where the whole economy is tilted towards it and the issue of us being increasingly a rentier style society. Whilst I welcome the removal of some of the tax breaks I also worry that landlords may have made so much money by then they may just shrug it off. Also the situation can get very messy.

 In a further sign that the London housing market is out of control, I received a worrying report last week from a friend who is renting out her two-bed flat. It turns out that it has been illegally partitioned to create four single bedrooms, and sublet on the black market for nearly double the rent.

Rentier squared?!

For those subject to this there is of course Gwen Guthrie.

Cause aint nothin goin on but the rent
You got to have a J O B if you wanna be with me
Aint nothin goin on but the rent
You got to have a J O B if you wanna be with me

Still the author of the article is okay at least.

However, I suspect the reason it has spread like wildfire online is that there are many owners of flats — myself included — who are looking at these crazy rents and smugly thinking “thank goodness I got on the property ladder when I did”. And possibly, quite a few buy-to-let landlords are thinking: “Hmmm, I’m clearly not charging enough.”

Employers are having to respond

I wrote a month or so ago that Deloittes was responding by helping some of its graduate employees and that trend seems to be spreading.

Last week, the coffee chain Starbucks offered to lend its workers up to £1,000 interest free as a rental deposit (a figure this map shows will only be of use if they live in the capital’s outer suburbs).

Will companies end up going back to the old model established in the past by Cadburys amongst others where housing was provided in a social as well as a business model?


The obvious point is how can London rents be unaffordable and a shock when there is no inflation according to the official numbers!? With rising wages and inflation being pretty much 0% in 2015 how can things have got worse? It gives me a wry smile to see the Financial Times reporting problems because if you point out the omission of many housing costs from the official CPI measure means that RPI which has a wider housing remit has an advantage you get a gaggle of FT journalist forming up war party on Twitter against you.

I have written many times that the UK needs to put wider measures of housing costs in its official inflation measure so for today let me give you some numbers. Here is rental inflation from LSL for England and Wales.

Annual pace of rental growth tempers to 5.5% over the last twelve months, down from 6.8% in July.

The monthly numbers fluctuate but you get the idea that there is inflation which goes missing in the official measure where rents are rising at 2.9% and owner occupied housing costs are doing this.

The OOH component annual rate is 1.8%, unchanged from last month.

Oh and if you throw in the appearance of black-market subletting the possible inflation rate shoots upwards. Another factor which gets little media space is the fact that the quality of housing appears to be in decline with smaller rooms ( i did read that bedrooms have been shrinking by 0.3% per annum but now can find the link…) and houses/flats. This is of course something of an irony as we get larger via the obesity crisis. We need a sort of reverse hedonics for this.

Also if we wanted the Governor of the Bank of England to take a real interest in the situation we should not have done this. From the 2015 Annual Report.

Mr Carney receives, as was announced on his appointment, an annual accommodation allowance of £250,000p.a., to reflect the additional cost of living in London rather than in Ottawa.

I will leave the last word to The Professor who has the most recommeneded comment on the FT article.

My daughter earns £18k before tax in what should be a graduate career job, and pays £800 a month in rent. Do the maths. There is a generation of parents out there who would quite like to see a property crash that would make life affordable for their grown up children, even if they’d take some of the pain themselves.

Amen Professor!

Here is a link to the FT but there is a paywall.