Property Prices

The English saying goes 'What's that got to do with price of fish?', which is strange as you'll almost never hear Brits discuss the relative prices of freshly landed mackerel, sea bass or Atlantic salmon. Yet you will hear them debate in forensic detail how much a three bedroom house went for in the next street which wasn't even that nice and the garden was much smaller than the others. In fact, there appears to be an unwritten, binding law in the UK that states when a social gathering of three or more people lasts longer than twenty minutes, the price of housing must be discussed by the group.

True, the mania has abated somewhat since the worst excesses of the property boom, when the TV schedules were filled with programmes suggesting that an easy way to get rich was to quit your job and spend six months renovating a house to then sell at an inflated mark-up to gullible buyers. Apparently, all you had to do add value to any home was put in plastic-looking wood veneer floors, paint everything beige and furnish each room in darker shades of mushroom and fawn. Prospective homebuyers in 2006 all dreamt of living in a home decorated in the style of a Best Western conference suite.

Beigeland

Of course what the programme never showed you was the couple who did not quit their jobs, bought an identical property, did absolutely nothing to it and then sold it six months later for 5% more than the original purchase price, which is what anyone can do in a rising market.

We're now into the fourth year of recession, yet the fixation with property remains strong, which is odd when you consider the following three factors.

1. Who benefits from high prices?

There's one only group of people who benefit from high property prices: those who already own property in a high price area and have little or no mortgage. At the extreme end of the spectrum, The Duke of Westminster and other major land owners get wealthier every year without lifting a finger. But property owners are not all billionaire Dukes; there are plenty of rich retirees with final salary pension schemes, who hit the jackpot by purchasing a house thirty years ago and watching its value treble in real terms.

Kerching!!!!

This unearned windfall gives these gold-plated oldies plenty of free to time in between golf, cruises and visits to their holiday homes, to complain about the state of modern Britain, lecture the rest of the population about the virtues of thrift and sink some of their cash surplus into buy-to-let flats to soak their fellow citizens.

2. Less homes are being built

You would think if the property market worked in any way efficiently, that the chronic undersupply of housing in the South East might lead to... I don't know... more houses? In fact the rate of new build is at its lowest ever, because developers realise that the market prices have far outstripped the average earner's ability to pay for them.

Let's take an example: Upper Holloway, hardly a glamorous neighbourhood, the average price of a four bedroom house is £865,000. So if you were a couple with children looking to buy that house, you would need £86,000 as deposit and a joint income of £250,000 (assuming you didn't already have equity). That's three times the London average, it puts you in the top 1% of earners and your reward for your stellar pay packet, is a house in...Upper Holloway. I'll repeat that for emphasis: UPPER....HOLLOWAY. I'm not singling out that area as being particularly shabby: if you are a fan of fried chicken outlets, Irish pubs filled with elderly alcoholics and plumbing merchants, then the N19 postcode is a veritable idyll.

Street drinkers' choice

If you want somewhere classier, for example Kentish Town (trust me it is in comparison to the Holloway Road), then your house will set you back a further £300,000. Even then you are still in what estate agents like to call 'an upcoming area', which means you are more likely to see Special Brew being drunk at ten in the morning than in a genuinely posh area, such as Barnes.

As far as I can tell London property prices have decoupled from all local economic factors; now the only new homes worth building are luxury flats aimed at the super-rich. And in the midst of the housing shortage, many of these properties stay empty for much of the year. Walk down a ultra-rich ghetto such as Hamilton Terrace, in St John's Wood, nobody's home, ever. Apart from the maid, but she's Filippino and they've confiscated her passport.

3. Prices are supposed to fall during a recession

There is normally one upside in a recession:  house prices, commercial rents and residential rents come down, which eases the pressure on people's disposable income. But in London, prices stay in the stratosphere and then people wonder why the economy is failing to respond, even after £375 billion of quantitive easing (that may of course have made things worse). Many are paying 50% of their net income in rent.

Imagine if the apocalypse came to pass and prices came down by say 20%. A lot of paper wealth disappears; plenty more real economic activity becomes possible. Renters have more money to purchase boutique London gin cocktails served by mixologists in secret bars, complicated hair cuts, skinny trousers or whatever it is young people fritter their wages on these days.  Homebuyers wouldn't have to load themselves with crazy amounts of debt and might have something left over each month to spend on nights out rather than stare at their beige walls and vases filled with twigs, wondering if all the sacrifices were really worth it. (Answer probably not).

   Overvalued property prices suck money from the young and give to the old, they extract wealth from those in employment and give it those who do not need to work: retirees, landlords and investors. They are making us poorer, not richer and the recession goes on...and on...and on....