Are we really in the middle of a property market crash?

    7 November 2019

    Are we living through the longest property market crash in history? It certainly doesn’t feel like it. There are no tales of repossession, no sign in estate agents’ windows that prices are being slashed, no sign of vast amounts of property being disposed of at auction for bargain basement prices.

    Yet on one measure we are in the middle of slump which has outlasted both those of 2008/09 and the early 1990s.

    Prices in Mayfair, Knightsbridge and Belgravia have now been falling more or less continuously for half a decade. In October 2014 the Knight Frank Prime Central London Index – which covers those areas – stood at 6343. This October it was at 5547. And there is little sign of the picture changing in the near future; in the year to October prices fell by 3.4 percent.

    The reason that no-one is talking of a property crash is that the fall is not reflected across the country, or even across London. According to the Nationwide, average property values in Greater London have depreciated by 14.8 percent in the past five years – almost exactly the same as across the UK as a whole. And who cares about billionaires anyway? I would guess that there are rather few distressed homeowners in Mayfair. Most will be able to cope with the reality that one or two of their homes have plunged in value by a million or two.

    What the divergent story between Prime Central London and the rest of the country does show is just how different these markets have become. Property slumps have often begun at the top before rippling downwards and outwards to the land of flats and semis which most of the population inhabits. Yet this time around there has been little or no sign of that rippling effect. Prices in the poshest addresses have continued their stately slide without anyone else really being aware of it.

    For many years the Prime Central London market has been an international investment market, driven more by exchange rates and other asset prices as by the need for people to find a place to live. The turning point came not with Brexit but with changes in stamp duty brought in by George Osborne, deliberately designed to prevent international speculators from monopolising London’s prime housing stock.

    Those changes appear to have achieved their objective: Britain has become a lot more like other housing markets around the world, where speculation is generally discouraged through the tax system – even if we don’t have, like Switzerland or Jersey, residency restrictions on who can and can’t own property. As for the rest of the housing market, it continues to be driven mostly by interest rates, job security and the availability of credit – conditions in all of which remain benign.

    None of this means, of course, that the general housing market is protected from a slump – just that it no longer has much of a relationship with the Prime Central London market. What happens in the Nash terraces now pretty well stays there.