PropertyInvesting.net: Property Investment News

London homes have grown in value in five years by nearly as much as the total worth of all housing in Scotland, Wales and Northern Ireland, generating a block to labour mobility that threatens economic growth.

Britain’s house price boom — which has begun to slow in recent months — has added £563bn to the value of Londoners’ properties during the past half-decade, research for the Financial Times by property adviser Savills shows.

The research highlights the unequal nature of rising prices, with nearly half of all the UK’s housing wealth — £2.5tn of a total £5.8tn — now concentrated in London and the southeast.

The average London home is now worth £429,000, compared with averages of £111,000 in the northeast of England and £129,000 in Scotland.

The gulf in prices is making it hard for people to move from the north to the south to find work, according to economists and business representatives.

Lucian Cook, Savills’ director of residential research, said the affordability of home ownership “has become stretched in the capital for those who have not benefited from previous house price growth cycles”.

This rise in prices reflects the strength of London’s economy, Mr Cook said.

“If it goes unchecked, most particularly if the fundamental undersupply of housing in the capital is not addressed as a matter of urgency or the transport infrastructure is not substantially improved to open up new locations, it will become a real barrier to labour mobility with potential consequential impacts on London’s longer term competitiveness,” he said.

John Dickie, director of strategy at business lobby group London First, said more housebuilding was the best way to tackle London’s spiralling house prices.

A survey of the capital’s businesses last year found that three-quarters of the companies polled thought that London’s lack of housing supply and high housing costs were a “significant risk” to the capital’s economic growth.

“High house prices, coupled with the high property taxes that come with the purchase of almost any London home, are hitting labour mobility both within London and between the capital and the rest of the country,” Mr Dickie said.

Chris Williamson, a Labour MP for Derby North, said there had always been higher house prices in the southeast but the gap had grown to “ridiculous” levels.

“Unless we build more affordable homes the problem is only going to get worse,” he said.

In 1976 Mr Williamson, then an apprentice bricklayer, bought a 3-bed home in Derby on three times his income. “Now a similar house would cost at least 25 times the wages of an apprentice. And in London that ratio would be even higher.”

Lisa Nandy, Labour MP for Wigan, said the cost of housing in London was a problem both for young people in the southeast and for others wanting to find work in the region.

“For young people, both north and south, this is a real problem,” she said. “We have been here before when we had the last housing and financial boom in London and the southeast six years ago, and it seems that the government have learnt absolutely nothing.”

Matthew Pointon, a property economist at Capital Economics, said the house price divide was “becoming more of an issue”.

“We are seeing people actually leaving London now as a result,” he said. “[Rising London house prices] can’t go on for ever because people simply cannot afford to live there.”

Employees on average incomes were being pushed further out of the city, making it vital to invest in transport infrastructure in order to improve their access to employment opportunities in London, Mr Pointon said.

“Given where interest rates are, now is a good time for the government to borrow in order to invest in transport,” he said.