Industry experts have released market analysis suggesting that if no alternatives are found to ease London’s housing shortage, the average price of a home in the capital could soar to £1million by 2020.
According to the real estate portal Rightmove, the average price of a home in London reached £620,000 this year. This is a rise of 9.5% compared to 2014, an increase equating to approximately £60,000. If the current annual rate remains steady then London may become a city exclusive to millionaires.
What has caused this rise in property prices? Our Director, James Huntly believes it’s to do with a supply and demand issue:
“Put simply, demand outstrips supply with London housing and this has caused the rise in prices we’ve seen over the last few years. The supply of housing has been further reduced by investors and FTB’s buying property whilst having nothing to sell.”
While this is most certainly the main cause for the continued rise in prices, I think it’s also important to note that London is no longer growing outwards, it’s growing upwards. Growth to meet demand is always a good thing but these new developments are becoming more and more luxurious, leaving them out of reach to those at the lower ends of the market; the Aykon Tower is a prime example of this.
IS IT TIME TO WORRY?
In December 2014, the Office of National Statistics (ONS) revealed the median annual gross wage for Inner London was top of the list as the home to the highest earners in the UK. The median wage was just under £35,000 per annum, which is 50% higher than the UK’s average of just over £22,000.
Certainly for those working Londoners earning the highest bracket of median wage, these million pound properties are often too expensive. They are deemed blatant icons of unattainability for those earning below the City’s average annual salary.
London has been described as a bubble and was recently accused of trying to wage a ‘social cleansing’ of the working class. As housing prices are estimated to keep rising, do London’s working class need to worry?
James believes that the future is looking good for the working class, commenting:
“Predicting the future of the housing market is always tough, but I would be optimistic. I would be thinking about taking advantage of the many regeneration schemes in the pipeline. Supply will always be an issue and therefore prices will always rise eventually – Look for the long term value not a short term gain.”
Alexander Jones, Lettings Director at Stirling Ackroyd agrees that there is no need for the working class residents of London to worry:
“There are plenty of affordable options in London and more and more areas that have been previously maligned will become gentrified so I don’t think there’s any real reason for people to panic just yet.”
While this may be exciting to those within the industry, there has been extreme opposition to gentrification throughout London.
The consistent rise in prices may be unsettling but there’s no need to panic, the government is well aware of London’s housing shortage and is looking at strategies to combat this. In the meantime, working class Londoners should be looking to take advantage of the government incentives offered to help them get their foot on, or move up, the property ladder.
WILL LONDON CREATE A STATE OF PERPETUAL RENTING?
Throughout the rest of Europe, rented properties are extremely popular and the obsession with home ownership appears to be limited to the UK. An increase in prices means that borrowing will become a bigger issue and given our past problems with irresponsible lending, the rental market can expect to continue to thrive.
When people think about the property ladder, the ultimate goal is to buy their own property, so trying to convince lenders to feel secure enough to take risks would help alleviate the pressure on prices. However, there is a fine line between taking risks and lending irresponsibly and it’s important that we don’t repeat the mistakes that caused the market to collapse.
While renting may become more common throughout London, it would take a major shift in opinion before people started to see it as a better long term solution.
WHAT DOES THIS MEAN FOR THOSE WORKING IN THE PROPERTY MARKET?
Those who work within London’s property market seem to be relaxed and optimistic about the price increase.
When asked how the price increase may change things for the property market, James said:
“I believe that the most excited and optimistic seem to be based in regeneration areas, the areas that CAN see prices grow. Whilst Central London prices seem to remain stable – growth isn’t anywhere near the same as regions across South East London and East London.”
However, optimistic or not, Rightmove’s study illustrates the desperate need for more affordable housing around London within the next five years.