In an earlier post I mentioned the very interesting column Michael Skapinker published in the FT 3 weeks ago on the impact of house prices on London’s influence. I took the liberty of sending him my thoughts and a shortened version got published in the FT last week. You will find the full version below.
As regular reader of the Financial Times, I would like to thank you and congratulate you for your very wise column in yesterday’s paper entitled ‘House prices in London must fall if the city is still to be top’. I largely share your opinion and I am thus writing you to share some of my observations.
First, let me give you a bit of context. I am 29 years old and I arrived in London from France almost 7 years ago. I started my career as a strategy consultant and I am now working for a private equity fund – like tens of thousands of my compatriots here. I got married in 2012 and I am now the father of a 2-year old kid.
My friends who stayed in Paris told me that the first step on the rent or property ladder was usually the hardest: the Parisian housing market is narrow, landlords are asking for a ridiculous amount of guarantees when they are renting to young professionals and flatshares are often prohibited. The situation, nonetheless, seems to get simpler as they get older: higher salaries, more confident landlords and, for many, the possibility to get a foot on the property ladder when they are in their early 30s.
In London, my impression is that the situation is reversed. In one hand, it is indeed easy and flexible for a young talented professional with a job in London to find a room – albeit most often in a flatshare as you rightly pointed out. The situation remains largely unchanged after marriage – although ‘Double Income No Children’ couples can afford to rent their own studio rather than staying in a flatshare.
On the other hand, the situation gets increasingly complicated when you have a kid. The school system in London is either prohibitively expensive or prohibitively complex depending on the path you choose (public or private). Households relying on a single income (e.g. if the mother stays at home) or not working in the financial services sector financially struggle to rent a 2-bed flat while coping with the demands of the expensive ‘London way of life’.
Personally, I have come to London with many of my fellow students and I have since then witnessed two waves of departures: the first one took place 3-4 years ago, when some decided that a first experience in London of 2-3 years was enough and they decided to look for a stable family life in Paris. The second one is happening now, where I see married couples with young babies deciding to pack because they cannot make it work financially.
Root causes are multiple and have already been largely covered, including in your newspaper. I am convinced that London primarily suffers from a strong housing supply-demand imbalance and that the implementation of a bold housing construction programme would partly alleviate the tension. I also believe that the way London is organised and the high transportation costs play a role. London is a very vast city and, despite a tight bus network, the tube is certainly the safest way for Londoners to cut their commute time. As a consequence, the price of houses located near tube stations tends to soar. Similarly, tube fares are among the highest in the world and some Londoners are ready to pay more in their rent if this helps them save money on their transport budget – this drives the price of centrally-located houses up. Those two factors combined create a huge variance in house prices depending on their location. A couple of weeks ago, in an article entitled ‘London homeowners dig down as property prices shoot up’, the Financial Times mentioned that the average price of a home is 2.5 times higher in Chelsea than in Battersea, which is located just a few minutes away. As a matter of comparison, the ratio between the most expensive and the cheapest areas in Paris is no greater than 1.8 times – and we are talking about opposite sides of the city.
Last but not least, you mention in your article that sales of £1m-plus properties have fallen. Only time will tell whether this drop is the sign of a wider ‘market cooldown’ or just a pause until uncertainties surrounding the financial place of London (e.g. Brexit, stock market crisis) are dispelled.
I cannot agree more with your conclusion. London needs structural change to maintain its worldwide leadership. Time alone will only worsen the situation and could in the long term transform the city in a giant ‘gentlemen’s club’, where only those who invested early enough would be financially able to stay.
I would be delighted to continue the discussion if you wish – in the meantime, I thank you for your time and your consideration.