London review

Renaissance London

Robin Johnson

Managing director, Kinleigh Folkard & Hayward

Someone once said that the streets of London are paved with gold. It might have been true for Dick Whittington, and plenty have followed him since, but during the past two years it felt rather as though our big cities had fallen out of favour – at least in the general commentary about house price rises. Fair enough – the race to the country in search of homes with the space to accommodate home-working and gardens to make lockdown living more bearable was real. It was followed, too, by the so-called Great Resignation when companies began to demand that their employees start coming back to the office. But even these trends didn’t really dent London’s housing market, and there is a lot of evidence now of its renaissance – even in the face of rising interest rates. Things feel very much on the turn. Walk down a London street and you’d be forgiven for thinking “COVID? What COVID?” The city is even more enlivened than it was before the pandemic, and a new generation of 20-somethings is raring to go.

Losing two years of opportunity to live, laugh, love, and generally have a ball in the country’s vibrant capital has left people hungry for its vital life.

It’s showing in the sales data. Office for National Statistics data shows average annual house price growth in London was at 8.1 per cent in February. There is an ongoing and well-reported shortage of stock on the market, and anecdotal tales of desperate pleas from buyers at their wits’ end trying to find somewhere bigger to live are abundant.

Rents in the city are also rising rapidly. More recent data from research house LonRes show that both sale prices and rents are still rising. Achieved prices across the whole of prime London were five per cent higher in April 2022 than during the same month last year, while rents were a massive 28.3 per cent higher over the same period.

The astonishing rise in rents is partly thanks to the lack of stock available to rent, which is down 58.6 per cent over the year. The lack of stock is also restricting activity, says LonRes, with new lets down 59.9 per cent compared to last year. New instructions for properties to let across prime London are also 37 per cent lower than last year and 50 per cent lower than the pre-pandemic average between 2015 and 2019.

This raises some questions. The latest round of regulations to hit landlords includes fire safety standards and significant investment to improve rental properties’ energy efficiency. Consequently, there are landlords who have thrown in the towel and exited the market. It’s possible this explains the shortage of new listings, but we are of the view that this has presented attractive investment opportunities for portfolio landlords – especially in the wake of inflation hitting seven per cent in February and forecast to reach 10 per cent by the autumn. Those looking for a real return on their money have few options at the moment. Cash is negative, and stock markets have been incredibly volatile since the start of the year. A recent crash in higher-risk assets – notably cryptocurrencies – indicates that market sentiment is retreating toward safe havens.

Property is one such, and, given that its price inflation is currently proving a good hedge against consumer price inflation, appetite to buy is currently strong in the capital. We are seeing a rise in the price buyers are willing to pay for flats, often in spite of a lack of outside space. Indeed, LonRes data shows the average price of a flat across the whole of prime London rose 4.5 per cent over the past 12 months. Perhaps not the heady heights of Welsh house price appreciation, which is tipping 15 per cent, but in the capital 4.5 per cent is not to be sniffed at. Greater London too is now outperforming, as hybrid working is luring people back to familiar commuter destinations. It would be remiss of me not to acknowledge that there have been a number of recent suggestions that house prices are set for a crash. The cost-ofliving crisis, lenders rolling back loanto-values, four hikes in the base rate in six months, and a general reluctance to over-indebt oneself have all been raised as factors that will curb demand and ultimately put a drag on price inflation. These factors are real enough that we need to watch the market closely, but the British housing market has a habit of performing completely out of line with the rest of the national and international economy. Supply and demand dictate this market – geopolitical shocks notwithstanding. M I