How far will London house values fall?

London has seen some of the most bullish house price inflation in the country as the nation’s ceremonial centre has been in the process of going from a national capital to a world megacity. Everyone expects domestic property values to fall as a result of the Wuhan virus, but by how much? There at several factors at play, I think. One is the fall in values that mirrors a fall in GDP; we saw this in 2008, when a small drop in GDP saw a much larger fall in house values, which fell between 15% – 20%. Add to that in 2020 the increased biohazard risk driving a flight to the country. All those shabby, noisy, flimsy multistorey blocks thrown up in the past fifteen years that have been so profitable for the volume builders have just become about as desirible as Rio favela-shacks make of crinkly tin. My own guess is there’s a long way to fall. Property in the counties and towns with gardens and fields within walking distance will fare far better.

A counter argument may be that London is ahead of the rest of the country in acquiring immunity – and recent research suggests that rather than 60% of the population having been infected, it could be as low as 10% – 20%, provided the right people, i.e. those most liable to infect others, have immunity. London’s economy could therefore bounce back far more quickly than the rest of the country, and dampen a drop in values. I don’t understand why crowded, rammed, jostling London should be better off than the post-industrial NE, but there it is.

I’ve constructed the chart below from the Land Registry HPI for London, taking the flats values, and the ONS quarterly GDP data series, both rebased to 1995 = 100. Interesting. And that verse by Louis MacNeice from 1934 always comes back to me –

Splayed outwards through the suburbs houses, houses for rest
Seducingly rigged by the builder, half-timbered houses with lips pressed
So tightly and eyes staring at the traffic through bleary haws
And only a six-inch grip of the racing earth in their concrete claws;
In these houses men as in a dream pursue the Platonic Forms
With wireless and cairn terriers and gadgets approximating to the fickle norms
And endeavour to find God and score one over the neighbour
By climbing tentatively upward on jerry-built beauty and sweated labour.