London’s Housing Market- A 30 Year Perspective

What will London’s Housing Market Look Like In 30 Years? Will the current generation of twenty somethings become a nation of renters? Will London’s boundaries increase beyond the M25? Will property prices have quadrupled? Of course no-one has a crystal ball but we try to answer some of these questions below. The trend over the past few years across the capital has been an involuntary tenure shift away from owner occupation towards private renting as is prevalent in other European economies such as Germany. In the short to medium term we believe that this trend will continue unabated as evidenced in Price Waterhouse Coopers 2015 UK economic forecast; this projects that there will be an additional 1.8 million private rented households across the UK by 2025 continuing an overall trend in which the proportion of private rented tenure housing has doubled to around 20% since 1981. In the longer term whether this tenure shift continues depends on the level of regulation imposed across the UK housing market. The current shift in tenure has resulted from a lack of affordability, of which the main indicator, house price to earnings ratio, has now reached unprecedented levels in several parts of the capital. The problems are all too apparent, on the supply side we are not building enough new homes and in addition as a result of an ageing population the number of existing houses that come on the market for sale each year have almost halved to just over a million since the late 1980’s. On the demand side our islands population is growing, the last time there were this many people living in London was in 1939. This leads to a trend of migration out of the centre and price growth further afield where barriers to entry are lower. The likelihood is that the proportion of private tenure housing will continue to diminish across the capital in the long term, and that property that is privately owned will become increasingly debt free. Successive governments must therefore ensure that there is sufficient legislation to protect tenants’ rights as well as those of the landlord. The German model provides an excellent case study, just under half of the population rent, security of tenure is provided to each tenant unless the contract is breached. In addition there is typically a minimum lease length of two years and certain cities have limitations on the amount that rent can be increased. Not all of the effects from becoming a nation of renters however will be negative, we believe that multi-generational households may mean that elderly are better cared for and we will become a more family oriented altruistic society. The fact remains however that living in a multi-generational house should be a choice rather than a necessity. We also believe that a growing population will act as a catalyst driving vital infrastructure projects across metropolitan areas where London’s boundaries have continued expanding.