London's Un-Burstable Real Estate Bubble

Letter from London is Larry Miller's weekly look at news from across the pond.



In a rather nice, but definitely not posh, area of west London, a fairly ordinary semi-detached 4 bedroom house with a 50 foot back yard was sold in 1969 for $15,000.

The next time it hit the market was in 1982, when it went for $140,000, and now it's selling again for $1.6 million.

Such is the London housing market. With just a few recessional dips along the way, London property prices have gone one way.

There are a number of reasons for this. Little available space means few new housing developments. Also, property investors looking for high rents and higher capital appreciation have taken thousands of homes off the sales market, especially at the lower end.

In fact, there is nothing that you can really call "lower end" anymore. Former Prime Minister Margaret Thatcher believed home ownership was a right, and that if people in public housing had a chance to buy their low-rent properties at knock-down prices it would relieve the burden on the state of housing them, and make them more responsible citizens.

Well, the cost of even these low-end properties from the "projects" is now also too expensive for most low-income families to buy.

At the high end, nothing seems to be too expensive. When a pretty average townhouse in the trendy area of Chelsea went on the market for $9 million, within hours someone offered $2 million above the asking price.

If you've got the money and want to treat your car really nice, you can buy it a private garage for $300,000. If that's too expensive, some parking spaces will set you back just $200,000.

The office building that housed the CBS London Bureau until a year ago has been knocked down and developers plan to sell 86 apartments in the new building for $50 million each ... that's right, $50 million — each.

Now, all this is a generalized snapshot of the London housing market. People waiting for the bubble to burst so they can get a foot on the property ladder may have to wait a very long time, according to real estate analysts.

The demographics show a third of London residents are immigrants, either very rich or very poor. They're squeezing prices higher from both ends and basic economics dictates that when there is high demand and low supply, prices go up.

This is not the case in other parts of the country, but if someone leaves London, they may not be able to afford to come back.

What does this mean for young people? Well, unless they get a very big helping hand from their parents, earn a lot of money or win the lottery, it means paying high rents or living at home. It is not unusual today to find single people in their late 20s and into their 30s still living with mom and dad.

Some mortgage companies are offering home loans of five times an individual or couple's salary, which is a lot of interest to pay. But even if you earn $50,000 a year, the quarter of a million they loan you is unlikely to buy more than a 1 bedroom flat in a fairly insalubrious area of the capital.

This week, the government said it was changing its so-called "greenbelt" policy, which prohibits the building of new houses in pretty countryside areas. It also is implementing plans to encourage part ownership of houses for first-time buyers, so they can get on the first rung on the property ladder.

Will this make a massive difference? Most people don't think so. One answer could be mass emigration. A recent survey suggests that 72 percent of young Brits between the ages of 24 and 34 are considering a move — to another country.
  • David Hancock

    David Hancock is a home page editor for CBSNews.com.

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