Great house price divide: London's 40% rises matched by big falls elsewhere

http://www.theguardian.com/society/2013/dec/15/great-housing-divide-disastrous-consequences

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House prices in much of London and the south-east have soared to well above their previous peaks in 2007 but have plummeted by at least 20% across large parts of Wales, the Midlands and the north over the same period, according to a comprehensive new study of the "great housing divide".

The report into the cost of average homes in 179 regions of England and Wales finds that prices have shot up by around 43% since the peak of November 2007 in the most sought-after hotspots of central London, and by more than 20% in many other parts of the capital.

In the same six-year period, however, they have fallen by a staggering 47.7% in Blaenau Gwent in Wales, and by 41.9% in Hartlepool in the north-east.

The study, by the Smith Institute thinktank, warns of disastrous economic and social consequences from rapidly diverging house prices, and argues that the disparities are entrenching wealth and income inequalities between regions. It says that the gulf in house prices is self-fulfilling as investors pump more money into already prosperous areas where prices are highest and returns are the greatest for developers, leaving the rest of the country behind.

The analysis comes amid rising concern at Westminster over a lack of affordable houses in the south-east and the problem of how to attract "key workers" such as nurses, teachers and other public sector employees to the capital, when buying a home there is way beyond their means. With prices now rising in many areas, but racing ahead in London, the Bank of England's chief economist Spencer Dale warned last week that the housing market had a "microwave quality to it, with a tendency to turn from lukewarm to scalding hot in a matter of a few economic seconds".

This weekend Labour's shadow minister for London, Sadiq Khan, is unveiling plans to help Londoners who are trying to get on the housing ladder, and those struggling to pay rents in the overcrowded rental market.

Paul Hackett, director of the Smith Institute, says in the report: "What we have witnessed over the past six years is the growth of two distinct and divergent housing markets: a London-centric property market where house prices have recovered and in some cases soared; and the rest of England and Wales where prices are flat and transactions are low." He says the divergence is "symptomatic of deep-rooted and persistent uneven economic development, with jobs and growth concentrated in London and the south-east". He adds: "Perhaps just as worryingly, if investment in new homes follows demand for housing [ie in London and the south-east] it will result in more economic activity and growth in these places, thus further unbalancing the economy."

The average house price in England and Wales is now £166,000, but in the north-east it is below £100,000. By contrast, the average price in London is just under £400,000. Other areas with huge falls in average prices since 2007 are Knowsley, Merseyside (down 36.2%, with the average price now £83,241), Blackpool (34.5%, £74,229), Liverpool (33%, £83,392), Durham (32%, £79,073) and Wolverhampton (31.2%, £88,245). Some parts of the north, such as York (down 1.4%, £186,875) have seen only small falls, but for many northern areas the decline is in double figures. The picture is similar for much of the Midlands.

In the south-east and London, however, prices tend to have risen more sharply above their 2007 heights the closer the region is to the heart of London. While the average price has risen 4% in Greenwich to £294,477, it has risen by 12% in Lewisham to £318,239, by 19.8% in Southwark to £441,377, by 27.6% in Islington to £562,721, by 42.8% in Kensington and Chelsea to £1,171,320, and by 43.2% in the City of Westminster to £863,256. Across all of England and Wales, average house prices are 9% down on 2007 peaks, but in London they are up by 12%. The value of housing stock in London has increased by £140bn since 2007 but it has fallen by £343bn in England and Wales excluding London.

The report says: "An unbalanced housing market undermines national productivity and competitiveness by making it extremely difficult and expensive for people to move for work from low-cost housing areas to high-cost housing areas. A widening housing price divide also exacerbates income and wealth inequalities between places and constrains local and national efforts to rebalance the economy. Investors are wary of investing in places where house values are flat or falling. Overseas investment in particular is attracted to the high-value market in London, raising the risk of a speculative housing bubble – which would be damaging to the economy."

LIMIT SALES TO FOREIGNERS, SAYS LABOUR

Labour is this weekend proposing several ideas to help ease the housing crisis in London, and improve the lot of those in the rental sector. Several of the policies are outlined in a new booklet Our London, edited by Sadiq Khan, the shadow minister for the capital. If implemented, the measures, including a possible system of rent controls, would amount to a truly radical package and put housing at the heart of the party's next election manifesto.

The measures include:

■ Using the tax system to prevent so many people from overseas snapping up newly built homes in London. It is estimated that around 75% of new homes are now bought by foreigners.

■ Offering incentives to private landlords, such as taking over management duties for them, if the landlords give guaranteed tenancies of three to five years and agree to raise rents by the rate of inflation at most. If these do not work, Khan says, "an alternative could be to explore giving renters and families a right to longer term tenancies and predictable rents".

■ Lifting the cap on council borrowing to allow councils to build more homes.

■ Building a group of "garden cities" close to the capital to relieve pressure in London. New town development corporations would be given financial backing and greater powers to build.

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