Demand for City Living
The housing market in our parts of London, was stronger in the first half of 2022 than at any time since 2014. Given the many economic and political challenges facing the UK, London’s property markets have proved remarkably resilient. Capital values gained 2% between January and June, while rents increased by 4% over the same period.
The strength of the market is firmly underpinned by two factors: the return of life to the city streets and the persistent shortage of homes for sale or rental. Together, they created conditions which have been able to withstand threats from spiralling energy costs, strained international relations, the unwelcome return of inflation to the UK economy and the still-hovering spectre of new Covid variants.
There is another key factor contributing to the resilience of this market: sale prices are broadly the same today as they were in 2014, while in other parts of the UK there have been steep rises. London prices have begun to look rather attractive in comparison with many other places. For many this looks like a good time to buy if only the stock were available.
Rents are another story. The return of London’s young workforce to the city has put extraordinary pressure on rental values. The market suffered a painful blow during the pandemic as London’s footloose renting population fled the city leaving rents to plummet in their wake. Summer 2021 marked a sharp turning point after which rents regained their pre-pandemic levels and far surpassed them. By the middle of 2022, rents were 12% above their pre-pandemic levels. Those who took leases while the market was slow now face higher rents at renewal. The unintended consequence is that renewals have soared and supply of homes to rent remains pinched.
The spectacle of steeply rising rents alongside relatively low prices inevitably piques the interest of investors as gross yields improve. We also recorded more enquiries from first time buyers, generally backed by capital contributions from their parents who sense that the time is right to help the next generation get on the housing ladder.
There were two government-supported interventions with major implications for our markets. The first, London’s newest underground line, has been a long time coming and has been warmly welcomed; the second, a financial pledge from housebuilders, is intended to unlock the impasse over fire safety works, although we remain to be convinced of its efficacy at least in the short term.
The Elizabeth Line opened on May 24th, later than planned but to high praise and just in time for the Queen’s Platinum Jubilee celebrations in early June. As well as adding capacity to the underground system, it slashes journey times and helps remove friction from the decision to commute into the office. It also improves the connectivity of our markets in Midtown, City and East London. For instance, a journey between Farringdon and Canary Wharf is reduced from 24 minutes to just 10. Infrastructure has always been an enabler in housing markets and this latest addition to the network will open up new destinations and reinforce values along its route.
No overview of the housing market can be complete without acknowledging the significant challenges facing the economy hot on the heels of a pandemic. Inflation rose to a 30-year high in H1 2022, energy prices were posing such a threat to household budgets that the government stepped in with a £15bn support package and wages are beginning to rise in response to inflationary pressures. The Bank of England raised interest rates for the 4th time this year in June to 1.25% and, while they remain low by historic standards, they have increased fivefold since the start of the year, are at their highest rate since early 2009 and may well rise again.
At the midpoint of 2022, none of this seems to have dampened demand yet and for anyone seeking a safe place for capital, property investment is often a favoured choice. There will be an overall impact on the housing market by later this year with price growth and rental growth rates anticipated to slow.