1.4 million pounds for new apartments in random places in London?

[agamemnus]

This doesn't sound very sustainable.

http://www.reuters.com/video/2015/10...eoId=365872478

[Timbuk2]

First it's the Russians ploughing millions upon millions into London property, and now it's the Chinese.

Returns on property investment in London have traditionally been huge, but sustainable it isn't.

And it's to the cost of ordinary Londoners who live and work here.

A New Statesman article here makes good reading, particularly the part on affordability; average earnings vs house prices in the UK compared to London.

Five signs the London property bubble is reaching unsustainable proportions

It's not difficult to see that London is facing a house price bubble. It's harder to say when it might pop.

One of the biggest misconceptions in economics is that it’s difficult to spot a bubble. On the contrary: spotting a bubble is actually pretty easy. The difficult thing is predicting when it’ll go pop.

So let’s not beat around the bush. London is facing a house price bubble. House prices in the capital are rising at unsustainable rates. On almost every reasonable measure of affordability (we’ll get to them in a second) London property prices are at or beyond what would normally be considered danger levels.

The sensible questions to ask now are: how long the bubble continue inflating, how will it come to an end (a pop or a long period of relative deflation) and whether it will cause systemic financial turmoil elsewhere. It’s these questions the Bank of England’s financial stability team are privately investigating as they watch the rise in regional UK house prices with a mild degree of horror.

Evidence of bubbly activity in London’s property is nothing new. We first reported on the growing gulf in house prices about a year and a half ago. About six months ago our update showed that the affordability levels in the capital were at unprecedented levels (of unaffordability).

Since then, things have only become even more pronounced. Let’s run through the evidence.


1. Prices are rising very fast
Nationwide have reported that house prices in London are rising at a rate of more than 18 per cent – the highest rate since 2003. According to the building society the gap between London and the rest is greater than it has ever been before (though it was at a historic level even before the latest iteration of its survey).


2. Prices rises are no longer just in “prime” areas
What’s particularly interesting about the numbers is that what previously looked a lot like a well-contained bubble in prime London property prices (eg the smart parts of town where overseas investors are particularly keen to buy) has spread out into other parts of the capital. The biggest increases were in Brent and Lambeth, rather than Westminster and Hammersmith & Fulham. Though Kensington & Chelsea prices are excluded from the Nationwide numbers, Land Registry data suggest house price growth has slowed there too.

However, rising prices are not, on their own, evidence of a bubble. Prices in Manchester were also rising by around 18 per cent over the past year. What makes London different is the performance of house prices in comparison with peoples’ ability to afford them. Now, there are a few ways to judge whether house prices are at sustainable levels. One is to compare them to the rise in other prices around the economy – in other words working out the real level of house prices, adjusted for inflation.



On this basis (see the above chart, which looks at real vs absolute prices in the London market since 1988), London house prices are still a touch below the levels they reached in late 2007. The recent rise looks far less pronounced. The important thing to note, however, is that remain considerably higher than they were in previous decades.

This is a useful yardstick, but a far better measure of affordability is to compare house prices with people’s earnings – after all, their capacity to afford a home will depend in large part on how much they earn. On this measure, the disparity between London and the rest (and, for that matter, history) is striking.


4. House prices vs earnings are at historic highs


According to this chart, house prices in London are now more unaffordable (compared to earnings) than ever before in recent statistical history. It’s often thought that the “safe” level for house prices vs earnings is about three times, and that once you get beyond four times you’re moving into difficult territory. These numbers show that for the first time, the average London house price is now eight times the average first-time buyer’s salary.

However, what this measure doesn’t show you is the impact lower interest rates have had on families’ mortgage payments. The Bank of England has cut Bank rate to 0.5 per cent; mortgage costs have fallen sharply in the past year or so thanks in part to Funding for Lending. And as a result, even though the absolute level of house prices is higher than ever before, is higher than ever before vs salaries and the necessary mortgage amounts are greater than ever before, the monthly mortgage burden faced by most first-time buyers is not.


5. Mortgage burden hardly dropped in London


This chart shows you mortgage payments as a percentage of take-home pay by region. As you can see, mortgage payments still account for an average of more than half of first-time buyers’ salaries, but this is considerably lower than in 2007 or, for that matter, the late 1980s. It’s this chart that many people refer to when arguing that house prices at their current levels remain sustainable. The problem with this argument is it ignores the fact that whereas in most periods when the mortgage burden was 50 per cent or more Bank rate was close to 5 per cent (or double that in the early 1990s), it is currently at a 320-year low. The only way is up.

Moreover, what’s striking in this chart, and in most of the others above, is how different the London story is to the rest of the country. Housing affordability in the capital is at its worst level ever, on most metrics. Even on the mortgage burden metric it is far, far above most of the rest of the UK, and never fell as much as it did in previous corrections.

It was possible to argue, until relatively recently, that this was merely a “prime central London” phenomenon – money rolling in from overseas investors to pay for nice, sparkling new apartments in Battersea. Not any more: prices across the capital are rising at unsustainable levels – not just in prime areas. There is growing evidence that households in London are having to take on unprecedented levels of debt to stay afloat – almost a fifth of new mortgages being taken out in London are for more than 4.5 times the buyer’s salary.

In other words, this is already a systemic financial problem. The London bubble has been growing for some time (and, by the way, Help to Buy is likely only to have had a marginal effect on this phenomenon, though it certainly won’t help). Other prices of the UK may well face their own bubbles, but right now they are not in that kind of territory. So contrary to what some commentators claim, there is no nationwide bubble. London is another matter entirely.

House prices in the capital cannot keep rising at this rate. At some point, either buyers will be unable to afford property or investors will be unwilling to accept falling yields (they’re already coming down) and will realise capital appreciation can’t carry on forever (whatever currency you’re buying in). However, saying all of the above is no guide as to when the moment of capitulation will come. No-one knows. It could be months; it could be another few years. The path will depend in large part on which party wins next year’s election and whether the winner imposes a mansion tax. It will depend on when interest rates go up and how quickly.

Either way, it’s high time the Bank of England, and, for that matter, the Government, put a little bit more time into thinking whether they need more tools to try to deflate the capital’s bubble safely and smoothly, without making the rest of the UK’s regions suffer.

[RandBlade]

I was at the Conservative Party Conference this week and two of the most fascinating speeches may not have got as much attention in the media but were by Boris Johnson (Mayor of London) and Zach Goldsmith (candidate to be new Mayor of London).

Johnson may have got on the media for some of his most bombastic style (as he often does) but when he was talking about the achievements in London in the last eight years it was quite remarkable, however the biggest problem clearly now is the lack of housing supply. Zac Goldsmith's was fascinating though, he was very detailed on the problems in housing and the solutions he has identified regarding housing and house building. House prices are a function of supply and demand and currently demand is outstripping supply, what needs to happen is to boost supply.

http://hammersmithfulhamforum.com/20...rence-in-full/

But by far the biggest challenge London faces is housing.

I remember in 2008 when I was selected to contest Richmond Park and N Kingston candidates were asked: who will fight off the developers?
Just a few months ago, the very same people asked candidates in the General Election hustings, how the hell are our kids going to get homes to live in?
We have seen a giant shift.
Rents in the capital are already double the national average.
The cost of a home for first time buyers is also double the national average.
And if the very people who make it what it is can no longer afford to live here; if young people can’t start a family because they can’t afford to move; then opportunities for families and businesses will simply dry up.
The answer is not easy.
But it is simple.
We need to build.
Contrary to what some believe, there is no shortage of land.
And specifically, there is no shortage of brownfield land.
We can build the homes London needs, without destroying the green spaces we love.

The Mayor’s new Land Commission, will identify all publicly owned brownfield land in our Capital.
We already know that put together, Transport for London land alone, would be bigger than the borough of Camden.
And there’s no shortage of finance.
Everyone wants to invest in London.
Our capital city is seen as a safe bet for investors.
But where homes are bought purely as investments, and are left empty, that causes huge resentment.
So we can do one of two things.
We can close the doors to outside investors, which is what the Labour Party wants to do.
Or we can capture that finance and use it to build the homes we need on publicly owned land.
As Mayor, I will set up a fund designed specifically to attract big institutional investors.
And I will use it to build a new generation of homes.
Affordable homes for young people, who neither qualify for housing lists nor are able to buy, but who have to spend most of their income on rent.
This is a cause worth fighting for.

But there is one important caveat.
Development will fail and deserve to fail, if we disrespect and trample on existing communities.
Many Londoners are instinctively suspicious of new development.
And I don’t blame them.
Too often they have no say, no control, over what is built in their backyard.
When a new development is proposed for their community, it is often ugly, out-of-proportion, out-of-keeping – and it is simply dumped on them, with no thought as to the effect it will have on their area.
There’s no case for ignoring local opinion.
Yes we need to build more, but we also need to build well.
If we get it right, if we work with communities and give them a real say, then the opportunities are endless.
Consider the 3,500 1950s and 60s estates, many of them poorly designed, many of them coming to the end of their lives.
With the consent of the local community – and with guarantees that they won’t be fragmented
– We have a chance to rebuild them, and provide more homes, better communities, and more beautiful streetscapes.
We know that high density doesn’t have to mean high rise, alienating blocks, magnets for social problems.
We can have attractive street based developments that people actually want to live in.

Which is why if I am elected Mayor, I will ensure that local communities can vote, to require the Mayor to call in significant developments.
I believe passionately in giving communities a voice, and making that voice decisive..
I want to make direct democracy, a London Reality.
And this will be a first step.

[Aimless]

Do you also have a mortgage deduction?

[RandBlade]

What do you mean?

[GGT]

How do you "boost" housing supply in areas that have reached maximum capacity? Tenants will only 'happily' agree to pay $2,000/month rent for a 300 square foot studio apartment for so long, before they figure out that living in the city isn't worth the cost.

I'm pretty sure the answer isn't billionaires buying up all the properties, and becoming landlords to everyone else. But there's also opposition to rent control, so wtf?

[Aimless]

What do you mean?

Tax deduction for interest payments on mortgages

[RandBlade]

GGT you boost housing supply by building. You can build on brownfield sites (land that was once constructed upon but now disused) or greenfield (land that has never been constructed upon).

My house is built upon a new estate on a brownfield site where a factory was once built but since demolished. There are two new villages being constructed in my town on the site of an old Air Force Base. Chapelford village has every road named after someone from or somewhere in America as it was a major American base during and after WWII. As the speech above said Transport for London alone has enough disused brownfield sites equivalent to the entire Borough of Camden (0.25 million people population).

Aimless no we don't. Buy to let landlords can deduct that against the tax they'd otherwise pay on income from rent, though the government is cutting that.

[Hazir]

The demand is of course bigger than London can deal with; for the average rich Russian or Chinese person money starts to get really gained once you manage to get it out of the country. There is no end to the pool of people that may show up in London to snap up 1 bedroom flats with 1 million pound price tags.

Even in Amsterdam we're starting to see this happening; Russians and Chinese buying up expensive real estate.

[GGT]

GGT you boost housing supply by building. You can build on brownfield sites (land that was once constructed upon but now disused) or greenfield (land that has never been constructed upon).

My house is built upon a new estate on a brownfield site where a factory was once built but since demolished. There are two new villages being constructed in my town on the site of an old Air Force Base. Chapelford village has every road named after someone from or somewhere in America as it was a major American base during and after WWII. As the speech above said Transport for London alone has enough disused brownfield sites equivalent to the entire Borough of Camden (0.25 million people population).

Aimless no we don't. Buy to let landlords can deduct that against the tax they'd otherwise pay on income from rent, though the government is cutting that.

But speculators could still buy empty warehouses or vacant buildings to build million dollar penthouses (like Trump did in NYC, for example). Or they could buy that coveted unused land to build new 'gated communities' that don't include apartments or multi-use zoning (like the apartment above the pizza shop, for example). And if the price of real estate is so high that ONLY the wealthy investor or real estate developer can buy it outright, and Banks require real assets as collateral for mortgages (where employment and income isn't enough).....then how do you ensure that new construction will actually be "affordable" housing, and not just more luxury high-end housing?

I don't know what that "mansion tax" is, but it sounds like trading tax revenue from a few wealthy people instead of creating more housing units, at affordable prices, for more people.