The London Intelligence – Issue 6


London’s housing market has been in a lull, with modest growth in average house prices and a large drop in transaction volumes. There has also been an overall decline in private housing rents. However, while demand and rents paid for flats dropped, there has been an increased demand for houses and an accompanying rise in rents paid. Housebuilding has also slowed, with fewer schemes passing through planning, and new build housing supply affected by cooling of buyer demand.

House prices

Average house prices in Greater London increased by 3.9 per cent in the year to August 2018, to £623,677, following negligible growth between March and June. This compared to a much lower rate of annual change for the rest of England and Wales, at 1.1 per cent.

Sub-regional differences in house prices

Source: Acadata/Land Registry data. Annual change in prices paid for transactions, unadjusted. By London sub region (NUTS)

House prices across London are seeing slow growth, in contrast to the rapid growth that the housing market had become accustomed to. Though political uncertainty has dented buyer confidence, prime central London appears resilient, showing signs of returning confidence. Prices in inner West London appeared to grow the fastest, by 8.6 per cent (to £1.2 million) in the year to August 2018, while house prices in outer West London have increased by 5.6 per cent (to £634,000). In inner East London the market has cooled, with a slower increase of 1.3 per cent (to £603,000) over the same period.

Transactions, by type

Transaction volumes in London fell further in the quarter to August 2018. A total of 20,000 homes were bought and sold in the capital, representing a 23 per cent drop on the previous year. There have been suggestions that this may be as a result of property speculators who buy and sell homes in quick succession shifting their focus north, while the market in London and the South cools.

Though there are noticeable signs of slowing since the 2016 EU referendum, some property types are showing slight signs of recovery. Transaction volumes over the last three months increased on the previous quarter by 15 per cent, 23 per cent and 13 per cent respectively for detached, semi-detached and terraced properties. However, the volumes for flats – the most commonly transacted property type – were down by 9 per cent on the last quarter.

Rental price index

The government’s regional index of private housing rental prices has been negative since April 2018, indicating a decline in London rental prices. There was a 0.3 percent decline in the 12 months to August 2018, although this is less sharp than the year previously. There has been an average 0.1 per cent decline since the beginning of 2018. This is compared to an average 1.9 per cent monthly growth in the rest of England.

Rent changes, by property type

Source: Dataloft

Data on actual rents paid in London show a slightly different picture. These figures show an improvement in London’s rental market – an indicator of the wider housing market and economic activity – with average rents increasing 1.9 per cent in the third quarter of 2018 when compared to the same period last year. This bucks a previous downward trend, which saw four consecutive quarters of decline. Larger houses saw the largest year-on-year increase, with terraced and detached housing showing significant increases while rents for flats were more subdued, possibly indicating oversupply of some property types.

Rent changes, by zone

The fall in rents paid in Zone 1 – typically used as a proxy for ‘Prime Central London’ – has slowed, with a 0.8 per cent decline in Q3 2018. Significant increases occurred in Zones 3 and 4 in Q3 2018, while rents paid in Zone 5 fell by 0.7 per cent in the same period.

The above average growth in Zone 6 is likely due to the profile of properties let in the third quarter, which saw a higher proportion of houses let with a higher than average rent. Overall, 50 per cent of properties let in Q3 2018 were houses, up from 36 per cent in the previous quarter, and 37 per cent in Q3 2017.

Planning pipeline

The number of considered planning applications fell in the second quarter of 2018. Only 122 large residential schemes were decided on, down 17 per cent on the same period last year. Local elections in May of this year may help explain the slowdown in major scheme decisions, as fewer schemes passed through planning committees. However, an increased proportion of those that did were granted – 83 per cent of large residential schemes – 7 percentage points higher than the previous quarter.

Unlike major schemes, most minor scheme decisions are taken by planning officers rather than planning committees, so the elections had less effect. The number of minor scheme decisions which were granted fell by 3 per cent in the year to Q2 2018, with those not granted falling by 13 per cent.

Starts and completions

While housing completions in the year to June 2018 slipped back below 23,000, the rate remains above the ten-year average. However, new starts remain subdued, falling below 17,400 in the year to June 2018, suggesting that new build housing supply is slowing – responding to economic uncertainty, as well as cooling of buyer demand, as indicated by lower transaction volumes.