House prices in London fell marginally (-0.7 per cent) year-on-year for the first time since June 2011, and the property market is subdued with historically low transaction volumes. Housing pipeline and completions show a more promising picture, with new unit starts at 25,000 in the year to June. The long-term decline in bus ridership appears to have stalled, as tube use remains stable.

Tube and bus journeys

The average number of monthly tube journeys has stayed relatively stable over the last few months, although falling marginally (2.3 per cent) for the four weeks to 16 September compared to the same time last year.

Bus ridership, which has been declining for a number of years, showed some signs of levelling off over the last few months – May, June and July saw year-on-year increases; the first time this has happened for three consecutive periods since December 2014. The hopper fare, which offers a free second bus or tram journey to the passenger if started within an hour of the original one, may be starting to have an impact on usage. Analysis indicated 100 million bus journeys were made using the hopper fare in the first year of its operation; and there are trials undergoing to allow unlimited extra journeys within the hour from next year.

House prices

London’s house prices recorded a year-on-year fall of 0.7 per cent in August 2017, the first fall since September 2009, according to Acadata figures used by The London Intelligence. This contrasts with the rest of England and Wales, which saw a rise of 3.1 per cent over the same period. Individual borough figures can be distorted by the number and mix of transactions taking place (they are unadjusted), but some of the strongest growth was in outer London boroughs, while many central areas saw slower price rises or even falls.

London’s housing market continues to exhibit its diversity. The capital is an aggregation of many sub-markets – each of which has its own characteristics – but some patterns can be seen from recent house price trends, within an overall expectation of flat UK economic performance and uncertainty over how long that will continue. Those with more discretionary spending, the households with the highest incomes and wealth, can choose when to invest, and are clearly holding back with the result that prices in the most expensive boroughs are falling in absolute terms. The market in the lower value boroughs is behaving more like the rest of England, with modest inflation in nominal terms. But with household spending power falling behind inflation, this translates into small falls in house prices in real terms.

Pete Redman, Managing Director, TradeRisks

One feature of the London housing market that has been consistent over the last ten years has been the relatively low volume of transactions, which fell by about half in 2007/08, and has not recovered significantly since. In the months leading up to July (data for subsequent months are incomplete), transaction volumes fell further, having spiked in spring 2016 (when new Stamp Duty Land Tax surcharges were introduced for second properties). It is possible that falling prices, and rising interest rates, will constrain transaction levels further, at least in the short to medium term.

Rental Price Index

According to the Office for National Statistics’ experimental index, rents rose by 1.4 per cent in the year to August, the slowest rate of rise since 2011, and significantly slower than England as a whole. This is good news for renters, though should be seen against a backdrop of rising inflation and sluggish wage growth, meaning that the cost of renting continues to rise in real terms. The slowdown in rental growth may have a knock-on effect on house prices, as London now offers some of the lowest yields for buy-to-let investors, who may look elsewhere for investment opportunities.

Pipeline, starts, completions

The housing market in London remains one of the top concerns of politicians and residents. Data for the housing pipeline, and housing completions show a promising picture.

According to DCLG figures, the number of new homes completed in the capital for the 12 months to June this year was 25,000 – the highest on record. However, even with other sources of new homes (e.g. changes of use) current delivery still falls short of the current London Plan annual target of 42,000 net additional homes per year, which is expected to be raised in the draft London Plan this autumn. Starts over the same period were 18,460, which was lower than the same period last year, and recent industry figures from NHBC show fewer new home starts being registered by builders in the three months to September.

Planning applications, however, present a more positive picture for the future supply of homes in London. Home Builders Federation (HBF) figures, for units securing detailed planning approval, have shown an upward trajectory, reaching nearly 60,000 for the year to June, a 15 per cent increase on the previous year. These figures can, however be a little misleading. HBF members deliver around 80 per cent of homes across the UK each year, so the figure may not present the full figure for London, ignoring smaller schemes. Conversely, they probably do not accurately reflect the housing pipeline, as applications may be double counted, and London’s consistent growth in pipeline has not been reflected in delivery in recent years.