Over the past decade, house prices in London have increased by only 13%, a 16% fall in real terms. While demand for housing remains high, the market has become stagnant, with high prices and interest rates deterring both buyers and sellers. What’s going on?
The market's stagnation can be traced to changes in policy and economic pressures. Stamp duty reforms in 2014 made high-value properties more expensive to buy, while additional taxes on second homes and stricter buy-to-let regulations dampened investment.
First-time buyers have been hit hardest by lending limits and high deposit requirements, leaving many unable to step onto the property ladder. As a result, first-time buyer numbers in London have remained below pre-financial crisis levels, even during brief market booms.
Wider Implications
The news has it that this stalemate has wider repercussions. Low transaction levels hinder labour mobility, reduce government tax revenue, and slow housing development.
London added just 32,162 homes to its housing stock in 2023-24, the lowest in nearly a decade. Rising international migration and limited supply have driven rents to record highs, further straining affordability.
A Path Forward?
Policy solutions are challenging. Boosting market activity without inflating prices requires delicate balancing. Longer-term mortgages and higher income multiples might help marginal buyers, but broader affordability issues persist. Meanwhile, the housing shortage demands significant investment, a tough ask in the face of delayed spending reviews.
While London remains a hub for many, some are looking beyond its borders for a better quality of life. For now, the city’s property market remains in limbo, with no quick fix in sight.
Sources:
Evening Standard
Moneyweek
Financial Times