To think London house prices are unjustifiably high

[Alanis126]

I was recently visiting London, where I once lived. It was a big big struggle financially and I wasn't sorry to leave. House prices have been stratospheric for 20 plus years and while there have been some small declines in recent years, I saw a central and fairly nice but ordinary sized flat which cost £1m. There are of course many properties costing way more. There are a couple of things in particular that I don't get. Forgetting the £1m central flats, even a very ordinary property in a quiet zone 5/6 area without much in the way of social amenities was £400k plus. While some people have family money, I think it is fair to say most people start their working lives with no or negative net worth. For many the early/mid twenties will be the lowest point if their income and when they most would like to or benefit from having access to social amenities. When even rent in a grotty house share is £800 plus bills, I don't see how it becomes feasible to live while you are trying to build a career. I know there are other cities but what if you have a job in an industry only existing in London? If houses are £2m or £3m then does it matter anymore what the price is? Could they be worth £5m, £10m,£150m? And while I accept people may still choose a London lifestyle, if someone has London equity and doesn't enjoy their job, is it only fear of being priced out for good that stops them relocating and having a total change of lifestyle?

My aunt bought her house 60 years ago, this years, in highgate, for 4,000 pounds, it was a struggle at the time. She never modernised it as such. So had the original marble fireplaces ceiling roses etc.... sadly we lost her last year she was an amazing woman, but this house sold for just over 3 million!
I know it's off subject somewhat, but wow!
Even so, most of our memories are in that house, so it was actually a sad thing that had to be done.
She bought it as a forever home, not like most nowadays, as an investment for the future.

Of course the prices are insane. I’m a single mum living in zone 6, just on the South London / Surrey border. You’re looking at over 500k for a family home

I think this is one of the problems

Years ago you rented and saved to buy.

Starting from a studio or 1 bed flat, work for another couple of years then buy the next rung. Maybe taking in a lodger, maybe working a 2nd job.

There would be no way that anyone could have afforded to move straight into a family home.

Single mums either didnt exist or certainly didn’t buy houses back in the day either

I think the point is that people bought before children.

In spite of the fact that on average women are now considerably older when having their first child. The average age of a first time buyer has risen faster and further than the average age of a first time mother.

I think the fact that first time buyers are more likely to be looking at larger properties due to already having children is a symptom of high prices, not a problem in itself.

The market decides what’s acceptable.

The market is influenced by government policy though - hb 'pays some of the rent bill, tax policy affects btl, capital gains etc; planning permission and licensing affects how much housing can be rented out, air b'n'bd etc. It would be very 'easy' in one sense to bring about a hefty reduction in house prices by changing tax treatment of btl, houses other than principal primary residences, and so on.

So I don't think we have a 'pure' market. The question whether house prices are 'justifiable' could be rephrased - are current government policies on tax treatment of housing and hb the ones that we want? i suppose my point is - it isn't 'out of society's hands' what house prices are.

I do think the tax changes to btl that are coming in gradually may have been 'undernoticed' - it will be interesting to see what effect they have on btl over the next couple of years. The other change is that some local authorities as pp below are considering planning permission requirements for changes to hmo. Obviously enforcement is quite an issue for tax, planning permission and licensing - i think one London borough estimated a couple of years ago that only half of lls were registered for self-assessment on their rentals?

Reason we left outer london (surbiton). At the time we were looking at 250-300 for a 2 bed rabbit box...now they selling for 400-600 and just seen one we looked at being advertised for 800.

@Oliversmumsarmy. When living in london we couldnt afford to rent and save anything. The rent was all we could afford. We did ten years in the rent trap market then left london

Yes Londonrach (time for a namechange in view of your house move?!!) there was a study done a while ago of % of average income spent on rent. Nationwide the average was tenants spending 27% of their income on rent. In London the average was 49% (don't know if this was pre or post tax income).

That does presumably make it harder to save for a deposit (though it depends - if your income is higher to start with there is that much more left over, but then again you need a larger deposit).

I think the fact that first time buyers are more likely to be looking at larger properties due to already having children is a symptom of high prices, not a problem in itself.

Young people also tend to have pretty indulgent lifestyles. Lots of going out, frequent holidays etc. When I was saving for a deposit, I lived in a box room, holidayed once a year and did cheap nights out, didn’t really eat out and packed my lunch for work. I was a single teacher and got my first flat in in my mid 20’s. I’m not that old so you can still buy flats for the same amount these days. It just seems to me that not many people want to tighten their belts for a while. And London is a money pit if you aren’t careful.

I think prices have probably reached a tipping point, a lot of people are choosing to leave for Brighton / Bristol / Manchester etc as quality of life is hard to achieve even with all the lovely london lifestyle things when so much income proportion of income is spent on housing. I think with Brexit / a likely cyclical recession soon we could see house prices fall back to close to where they were in 2010 in real terms - or lower - when they were high but not crazy. I think interest rate 'normalisation' is less likely given our political situation but of course that would also push down prices.

I think there is probably structural over supply in some markets (small new build flats) but more supply side issues with family homes / maisonettes.

People have moved to/ lived in London when they are young and this has helped supply teachers / nurses / doctors / bar staff / baristas and shop assistants along with big EU immigration but those things cant be taken for granted anymore.

I’m also not sure a Tory government will be interested in hb for Londoners so long as there are enough students and temporary workers from abroad filling many of the low paid jobs.

One other interesting development is that the government is intending to abolish 'no fault' evictions from private rentals - it was previous government policy, and was in the manifesto for the recent election.
It will be interesting to see what effect that has on the btl market - obviously it may depend on the details! But it could discourage people from buying new btls if there's no longer a (relatively) straightforward no fault eviction process - and I wonder if it could affect the availability of btl mortgage lending as well?

It's already been done in Scotland, but I'm not sure whether any studies have been done on the impact yet.

I do agree with whoever commented on the price of new builds.

When I was looking with a dd who hoped to buy a flat in a non fashionable part of London, there were shiny new build flats - with presumably high maintenance charges - of barely 50 sq m, for virtually the same price as Edwardian purpose built maisonettes of 70 sq m, with outside space thrown in, and although not far away, in much nicer roads.
I wondered who on earth was willing to pay the same for a lot less space and much higher charges, in a much less pleasant location

This whole country is stupidly over focused on one city

Totally agree. It's not the house prices that need focus, it's proper industry growth around the rest of the country.

London needs to stop being the only option for people who want good careers in some sectors.

Some areas are putting up a good fight (eg Manchester) but there still beds to be more balance across the country.

How can you ‘justify’ the value of a house?

There are a variety of ways but, at least medium term, the best is rental yield. Most London houses rent at 3-4% yields which, given mortgage rates of sub 2% and low stock market dividend yields, seems pretty reasonable.

‘Super prime’ London property (Chelsea, Belgravia, Knightsbridge etc) rents at 1-2%, which seems pretty unsustainable to me.

Longer term, it is all about supply and demand. As long as the City sustains (ridiculously) high remuneration and we welcome foreign (often dirty) money from Russia and China, I think London property will hold up.

On the subject of tax policy, having had a quick look at the con party manifesto, there is a plan to bring in a stamp duty surcharge on non uk resident buyers. Depending on how much it is, that could potentially reduce some of the new demand for London and other property from overseas.

This does affect everyone, in that people working in useful jobs are discouraged from living in expensive cities and regions, especially after having children. Also the high cost of living draws people into high paying less socially useful jobs like finance, as standard of living poor in more useful jobs due to high living costs.

We were looking at relocating to SE town and the high house prices put us off. I'm a GP and these places are desperate to recruit GPs, but we don't fancy having huge mortgage for poor quality house. Lower paid public sector workers won't have that choice as just wouldn't be able to afford to live in those areas. No wonder that these areas have shortages of teachers, NHS staff etc. Village where my parents live bemoans that local facilities are being closed due to lack of demand, but strongly opposed a new small housing development, in particular the "affordable" homes segment.

DH is very bright and was interested in working in various organisations where he would be doing work that could be beneficial to society, but looking at the pay and cost of living he has ended up doing something in finance that he says is pretty boring and repetitive, but we can build up savings whilst paying London rent so that when we move out of London we could buy a house from someone whose asset doubled for doing nothing, or perhaps from a BTL landlord whose income is paid by taxpayers via HB. It's madness, and it's holding the country back.

People saying "I lived on baked beans sleeping on a mouldy mattress in a dormitory to save up a deposit", wouldn't it be nice if that wasn't necessary for the next generation? If houses were priced to be in reach for a couple working normal jobs who saved but could also afford normal living costs?

For every person eating avocado on toast in cafes every day, there are dozens whose salary is swallowed by London rent, commuting and bills. And maybe the avocado person thinks buying a house is completely out of reach and so is enjoying their day to day instead.

Nobody has really made the avocado argument just pointed out that it is achievable if you makes compromises.

You are a GP ( so a higher earner) but aren't willing to have a large mortgage, again you have had made a condition which prevents a move.

Like the person who discounted Enfield based on one person's experience ( and a distinct lack of knowledge of the area) and others who do the same (Highams Park was discounted)

Surbiton has always been relatively expensive.

It’s true that prices are ridiculously high. On the other hand, London is the best city in the world so it’s no surprise that it costs a fortune to live here. The sheer amount of stuff to do on your doorstep is just fabulous. I love living in London.

Out if interest how many on this thread have a 2nd property &/or are a landlord?

I just find it interesting how the narrative is often, go on pay a massive mortgage or be grateful for your overpriced damp rental.

I'm a London homeowner but far too many are interested in keeping the ponzi scheme going.

I'm not particularly old but I think the burden on the young is ridiculous.

Expensive degrees (yes not always necessary but this wont change until employees stop putting it as a pre requisite)
Pension security - unlikely to receive a state one & private ones aren't half as generous anymore plus low returns on savings.
Healthcare - I can't see the NHS continuing in its current form or either waiting lists will continue to grow so more people will have to use private.
Wages - many industries haven't really seen much change in the last decade or so.
Tax - I'm pretty sure we will see income tax raises as the country needs money.

Honestly if I was a 20 yr old with good prospects I would leave.

I think you're right @Rikstar and they have reached a tipping point.

This business about London being the best city in the world. Isn't part of what makes a city great the ability to have affordable accommodation that allows disposable income to enjoy socialising etc? There could be all the museums and galleries you want but if vast vast swathes of people cannot afford to live there, doesn't that make it a great city for very wealthy people rather than a great city? I recently visited Vienna. There was no end of things to do, I didn't think "oh God this is only a fifth as good as London" and housing and transport costs are around 20% of Londons. It seems that for.about the last 15 years there has been this almost religious mantra that "London is the greatest city in the world" as if there is an independently audited international pointa ranking. By definition the people that live there can afford to live there, but I don't think it is great that for so so many that the barriers to entry and setting up there are so vast.

I think prices have probably reached a tipping point, a lot of people are choosing to leave for Brighton / Bristol / Manchester etc as quality of life is hard to achieve even with all the lovely london lifestyle things when so much income proportion of income is spent on housing

I'm sure I read that more people are leaving London then arriving particularly families with young children, immigration keeps the figures steady. This has always been the case but the figures have accelerated & whereas before the home counties was the destination more people are moving to other cities hence the boom in Bristol.