Apart from London and the south-east, it's just a myth
Tue 17 Sep 2013
Look anywhere beyond the south-east and the housing market isn't exactly racing away. The fat-bellied
excrescence of London is garbling all the averages. Since September there has been a bubble in house price
bubble stories. Britain's national newspapers have carried 54 articles in the past fortnight alone containing the
words "house price bubble." But official figures from the Office of National Statistics will prompt many to ask,
"Bubble? What bubble?"
Readers in Scotland must scratch their heads every time they see another headline about explosive price growth.
Across Scotland, the ONS says, house prices are down 2% over the past year: in July 2012 the average home in
Scotland sold for 184,000, but now it fetches on average 2,000 less.
In Northern Ireland, the collapse of the property market has been spectacular, and shows only the most feeble
signs of recovery. Average prices peaked in the province at 249,000 in August 2007 and now stand at 132,000, just a small upturn on the 125,000 floor hit in 2012.
In the West Midlands prices have climbed back up, but hardly merit the description "bubble." On average a home
in the region costs 184,000, just 2,000 ahead of the level hit in 2007.
What is apparent is that the bloated, bilious, fat-bellied excrescence that is the London property market is
garbling all the averages. A property in London now costs on average 438,000. As the credit crunch unfolded in
2007 price rises temporarily halted at about 340,000, but soon returned to a gallop. Between June and July 2013
they rose by an astonishing 13,000 - that's 565 every working day. That month you would have to put aside
70 every working hour just to keep pace with the explosion of house prices in the capital. Fine for Gareth Bale,
perhaps, but not for anyone else.
Don't even ask if there is a bubble in London. How much it continues to inflate, though, is the real question.
Puzzled Londoners, whose pay is rising by 1% or 2% a year, wonder just who is paying these prices? The answer
seems to be foreigners. Last week, David Newnes, a director of LSL, the second biggest estate agency in the UK,
told me that at one of its London agencies, Marsh & Parsons, two-thirds of purchases are made in cash, and
two-thirds of those are to foreign buyers.
The London bubble presents tough choices for policy makers. The Bank of England's tool-kit is full of instruments
that are powerful, but blunt. Britain probably needs flat interest rates in Burnley, but rising rates in Battersea. The
Bank can order caps on loan-to-values (no more 95% loans perhaps, or no more 35-year mortgages) that would
cool the market in Hackney, but kill it in Hartlepool. It could limit banks from offering jumbo-sized loans for house
purchase and have zero impact on the flood of cash buyers from Singapore to Sydney pouring into the capital.
Last night, business secretary Vince Cable said on BBC Newsnight that he remains committed to the
government's Help to Buy scheme, which from January extends to all homes, not just new builds, but that there
are a variety of ways of introducing it, hinting at different speeds in different parts of the country. The Bank of
England now needs to find ways to sharpen its tools so that when intervention comes, as it must, it is the capital
that bears the brunt, not the regions.