The cold weather in early 2018 caused a dip in public transport passenger numbers. House and rental prices fell in the first quarter – although these falls are not equally distributed across property type and location – and while completions rose at the end of 2017, starts and houses in the pipeline were lower than previously.

Tube and bus journeys

Ridership figures show the significant negative impact the cold weather – particularly the so-called ‘Beast from the East’ – in the early part of the year had on London’s public transport performance. In the period ending the 3rd March, Tube journeys were down 2.8 per cent compared to the year before, while bus journeys fell 1.1 per cent. These significant drops came off the back of a more upbeat looking February, where tube riders rose 3.5 per cent – the first increase in almost a year – while bus use rose just 0.1 per cent – continuing its recent, if muted, resurgence.

House prices

London’s housing market continues to cool. Based on price-paid figures provided by Acadata, house prices in London fell by 1.5 per cent in the year to February, their second successive decline (they fell 0.4 per cent in the year to January), reflecting the effects of wider economic trends and specific policy interventions. Surveys continue to point to falling demand for London housing, which may have a wider impact on household spending. While the effects of stamp duty changes have largely been absorbed into the market, there appears to be a largely negative future outlook for the capital’s prices.

Prime areas continue to see the sharpest declines, with some research suggesting prime prices are 8 per cent below their 2015 peak. And estate agent data suggests a third of London’s properties listed have reduced their asking price, with central boroughs seeing the largest percentage reductions. Outside the capital, house price growth has also slowed, to a 2 per cent annual increase, but is yet to record a fall.

Note: adjustment and weighting changes took place in January to the Acadata house price data, which are based on the last four years of transactions to reflect the most up-to-date mix of sales, which means this issue’s data does not directly map onto previous ones. A consistent problem for recent months is that new build sales (which have different properties) take longer to be registered on the Land Registry database and so some alterations to the latest figures will be likely in the coming issue.

Transactions, by type

The cooling of the market is reflected in the transaction data as well – data from the end of 2017 indicates transactions from October-December were 10 per cent lower than the previous year. Flats, while still the largest by volume, exhibit the sharpest slowdown in transactions, falling 17.5 per cent, while semi-detached homes saw transactions actually increase by 3.2 per cent. Over the course of the year, however, the rate at which flats and semi-detached houses were transacted (both 2.8 per cent of stock) was marginally below detached homes (3.2 per cent) but above terraced homes (2.6 per cent).

Transaction rates by borough show some boroughs had a much ‘hotter’ year than others during 2017. Sutton saw the highest transaction rate of 3.6 per cent of properties, driven particularly by a high rate (4.5 per cent) of flat purchases, while Islington was the ‘coolest’ borough at only 1.6 per cent of properties bought and sold in 2017.

There is widespread expectation that interest rates rising are likely to rise in the near future, which may encourage some prospective buyers to bring forward their purchase to lock in a low interest rate, which may drive a slight uptick in transaction levels, or it could prove to be another dampener on the traditional spring selling season.

Rental market

Rents, by property type

Rental price-paid data is provided by Dataloft, using a large dataset of real-life transaction data, and shows a continuing cooling of the market across the capital. However demand, especially in central London, continues to grow, which may place upward pressure on prices moving forward. The number of new people looking for rental property who registered in the first two months of 2018 was 16 per cent higher than the previous 12-month period, while viewings rose 14 per cent.

Average rents paid continue to fall – compared to the same period last year, Q1 rents were 1.2 per cent lower, which was the third consecutive quarter of declines. Smaller flats saw small increase or decreases, while terraced houses saw the largest year-on-year fall (-3.6 per cent). Detached and semi-detached rental properties saw the largest growth, after a significant fall last quarter, likely due to a slight market correction.

Much is made of the high cost of renting in London, compared to monthly mortgage payments, but OBR analysis produced for the Chancellor’s Spring Statement suggested that over the next five years, monthly payments for tenants would grow modestly compared to mortgage-holders, as interest rates rise, though some landlords may seek to increase rents to cover costs.

Rents, by zone

While average rents across London fall, Zone 2 is the only travelcard zone to have consistently bucked the recent trend, with rents paid increasing 1.6 per cent in the year to Q1 2018.

Zones 3 and 5, which saw the deepest drops at the end of last year, have recovered a little, but still fell 1.4 and 2.7 per cent respectively. Zone 1, on the other hand, fell 2 per cent, as the prime central London market adapts to a slight oversupply recently.

But while supply is diminishing as landlords are beginning to see value in selling, demand is rising according to recent research, which may lead to future pressure on rents.

Planning pipeline

Decisions made on residential planning applications in London show that both the total number of decisions on residential schemes, and the number granted permission fell year-on-year, for the second consecutive quarter.

For major residential schemes, there were 155 decided on (lower than the same period last year) with only 114 granted permission (also lower than last year). Only 74 per cent of these major schemes were granted permission, the lowest proportion since 2012, which may reflect community concerns over rapid neighbourhood change and suitable provision of affordable housing, particularly in advance of the May borough elections.

The number of total minor schemes decided on and those granted permission, also fell, although the proportion rejected was in line with the longer-term trend, at just under one third (although some may be duplicates of approved schemes).

Starts and completions

For the full-year 2017, new housing starts were marginally under the equivalent figure for 2016, at 17,220. Completions rose to a record high of over 27,000, a result of a number of high profile schemes coming to market, although there remain concerns over the levels of affordable housing in some schemes.

The cooling and slowdown of London’s housing market, particularly for smaller flats, appears to be having a significant effect already on developers’ and house-builders’ capacity and desire to start new homes, though it is noteworthy that the GLA confirmed in April that it had hit its target of 12,500 affordable home starts in the year ending March 2018.