Average London House Price change between 2002 and 2013 pic: McCarthy-Rimella
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It’s no surprise that house prices in London are on the upswing. Prices have been going up every year since the housing bubble burst in 2008 and overall, in London, prices have almost doubled in the last decade – a trend that isn’t likely to stop anytime soon.
A December report by Oxford Economics, on behalf of the National Housing Federation, forecasted that the average cost of a London home will go up by more than 40 per cent in the next six years to almost £650,000, pushing first time buyers and low-income earners out of the market.
A shortage of new homes is often quoted as the driving force behind the trend, but it doesn’t help that the residences that are being built are often criticised for not being accessible for people on a limited budget.
“What the whole of London desperately needs, and particularly the popular areas, is more supply. When supply can meet demand, this fight for property will disappear and prices will go down,” said Sophie Chick, an analyst at the estate agents Savills.
The state of the mortgage market isn’t lending a hand either. Despite interest rates being at their cheapest since 2004 – figures from the Council of Mortgage Lenders show they’re set at 3.06 per cent – mortgage lenders are requiring prospective buyers to hand in a higher advance on their mortgages. The government has announced that next year, for the first time in five years, wages will increase more than inflation, but for the moment this is not the case.
Inflation is still hovering around the 1.7% mark, which makes it more difficult for prospective house buyers to save up for a down payment on the mortgage.
The rate at which house prices have increased has dwarfed any increase in pay in London. This, coupled with the fact that average pay rises over the last five years have been lower than inflation, means the affordability ratio is only worsening.
Help to Buy was presented as a solution to the problem but, apart from fears that the scheme will fuel another housing bubble, it has had a limited impact in EastLondonLines boroughs.
Since the start of the scheme, only 42 people used it in Croydon and 28 in Lewisham. In Tower Hamlets and Hackney, two boroughs that are notoriously difficult to rent or buy in, only 14 people have applied for Help to Buy, according to data from the government.
Figures from the HMRC suggest that the number of people buying homes is at its highest level since November 2007 and the absolute number of mortgage approvals has gone up 57 per cent in the last year.
However, these figures only seem striking compared to the recessionary dip after 2007, but they are nowhere near pre-recession levels. They also don’t take into consideration the demographics of the people actually buying houses, nor the mortgage rejection rate.
Many low earning aspiring buyers are still stuck having to rent: yet, this can prove evermore cash stripping, as rent prices have also skyrocketed across the capital. This makes the prospect of saving up to secure a mortgage fade in the distance.
Rent increase v pay increase pic: McCarthy-Rimella
Following a London-wide trend, house prices in all EastLondonLines boroughs have significantly increased. Yet, these areas also make for interesting case studies for added causes behind the hike – explaining trends in social and property changes across the city.
By Chiara Rimella and Daniel McCarthy
Gentrification central – from top or bottom?
Attracted by lower prices and proximity to the city, young professionals and artists moved into Hackney during the last decade, upping demand for housing and increasing the social divide between old and new residents.
“Where the artists go, the rest will follow,” said estate agents analyst Sophie Chick. Hackney has also been affected directly by the completion of the Overground extension to Dalston in 2010.
“It’s partly got to do with the industry. Old Street Silicon Roundabout is a big driver of the market. Also, in Hackney you’re still relatively close to the City for people working there. It’s an area popular with the arty, trendy type, people wanting to live close to Shoreditch, who tend to be the trendsetters when it comes to new housing markets.”
However, since Hackney prices have risen so much, artists are being pushed out and are migrating further east and north - particularly to Waltham Forest, where a similar pattern is now expected to happen.
“Waltham Forest is becoming more and more popular because it does offer a discount to Hackney – it’s about 43% cheaper”, Chick says, adding that Waltham Forest now is a high performing market, second only to Hackney in London.
Bill Parry Davies, founder of Open Dalston, a heritage group campaigning for quality in building provision, has a different interpretation of the reasons behind Hackney’s gentrification.
“I wouldn’t call it traditional gentrification. That’s not the case with the recent wave or, rather, tsunami. It’s top-down regeneration schemes, an imposition from above of large developments.”
Davies, who works as a solicitor at Dowse & Co, thinks the government is not investing enough in affordable housing and putting itself in huge debt by pushing Help to Buy, only stimulating house prices further.
“Take any of the major developments in Dalston. The one in Kingsland Road will only have 10 affordable flats out of 100 that are to be built. To buy a one-bedroom flat you have to have a household income of about £44,000 and when you think about the average Hackney income being only £29,000, this is not affordable. Not for the families who need these houses.”
According to Davies, among the people who will be able to afford developments like this are foreign investors who aren’t “buying to let, but buying to leave”, in particular Chinese and South East Asian investors who often buy off the plan before construction has even begun.
These houses become capital assets and aren’t made available to the public while investors wait for the property to appreciate.
“All in all, who’s benefitting from this? The developers and Hackney Council. They’ll get more money from council tax,” concludes Davies.
Hackney Council disagrees with Davies’ assessment, and says that it has built more than 220 council homes for social renting and shared ownership in the past few years with 320 more starting construction in 2014.
A spokesperson for the council said that the plans are “to ensure that Hackney both now and in the future remains a borough of mixed communities.”
Criterion Capital, the developers in charge of the Kingsland Road project, refused to comment.
A tale of two cities
Tower Hamlets is a borough with two very distinct personalities. Canary Wharf’s glass-plated skyscrapers tower over the paucity of wealth in Whitechapel or Bethnal Green.
“It’s a tale of two halves,” estate agents analyst Sophie Chick said about the borough, “Along the river you’ve seen a very strong house growth but as you go farther inland you see a dearth of growth.”
According to Chick, people who want to live near transport links or live near their workplace make up a lot of the people moving into Tower Hamlets – particularly people who work in the financial district, who want to move into the area to cut commuting times down.
This explains why the rate of pay increase in this borough has kept up with house prices better than in other boroughs’– Tower Hamlets is becoming home to more well off citizens by the day.
ONS data shows that there are significantly more commuters coming into Tower Hamlets than leaving it, and more than half of those leaving are traveling to work in the City of London each morning, another financial hub.
Locals stay put as commuters chew up the market
Lewisham is also going through a similar gentrification process, as rents closer to central London push people to the outer boroughs in search of cheaper prices.
David Meredith, Lewisham branch manager of Robinson-Jackson Realtors said that people are attracted to the area because of transport links, but the transformation in some parts of the borough – like the increasingly popular Hither Green – are what is really attracting people.
“A lot of the pubs, the cafès, the shops, have changed to cater for the yummy mummies – as they are often called – and the young professionals. Our clientele is mainly made up of those kinds of types– it’s got to feel nice.”
In the past two years, the profile of buyers moving into Lewisham has changed. “Ten years ago the bulk of customers were local people moving from a 2-bedroom to a 3-bedroom or 4-bedroom. Now they’re increasingly staying put. What changed the market was the opening of the DLR in 2005,” said Mark Beaumont, head of Beaumont Gibbs estate agents in South London. The new transport link has lured in commuters from all over London and the suburbs.
Most of the new inhabitants travel to the capital’s financial centres – the City of London, Tower Hamlets, and Westminster. Lewisham has the highest rate of commuters in London: double the people coming into the borough leave every morning to go into work.
A lot of the newcomers are attracted by the big developments that have changed the face the borough. One of them, the controversial Convoy’s Wharf - a proposed project in Deptford supported by Mayor Boris Johnson - is supposed to bring 3,500 houses to the area, but it has been contested because of the lack of affordable housing available.
These developments are flagged as solutions to the problem of stock shortage in Lewisham – the single reason quoted by estate agents as the driver behind price rises in the borough.
Meredith said: “It’s a problem of supply and demand, there are just too many buyers. We have 15-20 people per property in bidding wars.”
Mark Beaumont, manager at Beaumont Gibbs estate agents, agreed: “Basically, we’re dealing with less than half the stock that we had before the recession”
Cheap prices destroy the ‘CR’ stigma
Croydon, a borough that has always been outpaced by London as a whole in terms of house prices, has also seen a certain degree of gentrification in recent years.
“The new buyers in Croydon are coming from a higher demographic – higher salaried people, which can only be a good thing for Croydon,” said Ian Vernon, a realtor at Bairstow Eves in Croydon.
According to Vernon, cheaper asking prices and easy transport links in Croydon, have destroyed a lot of the “CR” postcode stigma that existed years ago, and used to turn people away from Croydon.
Commuters are also discovering how Croydon can be handy since the East London Line extension. “A lot of people might have felt that moving to Croydon would have compromised their journey”, said Vernon, “but in real fact often the journey is only 5-10 minutes longer than the tube journey they used to do before.”
