House prices: is Aberdeen's slump a portent for London?
02-29-2016
'Europe's energy capital' hit after a long period of growth as oil slump and job losses take their toll
Once a boom town, Aberdeen, home to the companies and workers of the North Sea oil sector, is seeing a housing market reversal.
After seven years of rapid growth – The Times notes that two years ago, the city was registering annual house price inflation of 14.4 per cent, nearly double the UK average – valuations for properties sold in the city fell 4.1 per cent through 2015, according to data from Hometrack. At £186,200, the average house in Aberdeen is now worth less than the nationwide average.
Obviously, the situation in the so-called "energy capital of Europe" is unique and the result of an 18-month long slump in the oil price, which has ravaged industry investment and led to as many as 10,000 job losses. Before the downturn, more than 40,000 people in Aberdeen were employed in the oil and gas sector and the city boasted more millionaires per 100,000 people than London.
Emphasising the contrast, the Hometrack report shows house prices in Edinburgh rising 8.6 per cent, in Glasgow by 5.4 per cent and even in Dundee, "which has the fourth lowest employment rate in the UK", by 1.4 per cent. Across the 20 UK cities and towns tracked overall, prices advanced by more than ten per cent, notes The Guardian.
But Hometrack's Richard Donnell says Aberdeen could, if fears of an economic crash prove accurate, be a sign of the future for London, where prices rose 13 per cent last year.
"This is an example of how housing markets are only as strong as their local economies. The bigger the industry for an area, the bigger the impact it's going to be," he said. "You really need economic problems to get prices to fall. Aberdeen is a microcosm of what could happen in London if you had a big economic impact on the London economy, given how much prices have gone up."
At the moment, such a scenario appears far-fetched and while economic expansion is slowing, few expect a return to recession. In the meantime, Hometrack, as well as the latest Land Registry index, are recording the familiar pattern of reduced sales and prices rising at a time of very high demand.
The Land Registry reckons prices in England and Wales rose 7.1 per cent for the year to January, with the average price now £191,812.