Property prices don’t read the newspapers
By Kewill Ludens    29th February 2008

It seems incredible now but my first house cost me £12,000. It was a terraced house in Hornsey. I bought it in 1975 with a friend paying £6000 for my half.

Two years later I bought him out. I sold the house in 1984 for £114,000. This was a nice profit but not as amazing as it looks because I had spent £25,000 on repairs and renovations. I have just had a look on My Property Spy to see what houses in my old street had been selling for recently.

Amazingly there was one with the stunning price of £1.15m. This is amazing for two reasons. First, it is close to 100 times what I paid for a similar property. Secondly, it means that houses in a bog-standard London street in an unfashionable neighbourhood (practically Finsbury Park!) have broken through the £1m barrier.

Million quid houses are ten a penny now
It does not seem that long ago when the first property of any description in London sold for over £1m. Fifteen years ago £1m would have bought a giant Richard Branson-style Holland Park mansion, the sort of house where you would expect a millionaire to live.

My property researches also unearthed another crucial point. Unless prices are falling, observers have always been stunned by the latest rise in property prices. The press are always talking about crazy unsustainable prices. First time buyers have been squeezed out for so long it is a wonder that there are any left at all; yet every present-day house owner was a first-time buyer once.

Many streets go years without a single sale
I have also noticed how little activity there is in many parts of the property market. This makes it particularly risky to sell in the hope of buying more cheaply. In many streets years go by without a single property being offered for sale.

This effect is further exacerbated in falling markets, particularly in the higher value ranges, because there is so little pressure to sell. If people think they are going to have to sell for less than they would have received a year earlier they won’t sell.

There is a further effect in London, especially, that I have noted before. Big price rises mean many people are living in houses they could not afford to buy. If they sell it is for ever. On top of that many of the buyers are foreigners who don’t have anything to sell themselves so there are powerful forces making the supply of London housing tighter and tighter.

Gold, baked beans and a machine gun
This brings me to the next ‘strange but true’ fact about London’s property market. Despite the increasingly epic gloom in the press, reminiscent of Jim Slater’s despairing comment in the mid 1970s that the best portfolio would consist of gold, baked beans and a machine gun to make sure nobody could steal your baked beans, London house prices don’t appear to me to be falling at all.

In street after street that I have looked at houses coming up for sale in 2008 are being offered at prices way ahead of 2007 levels and they are selling. If it wasn’t for the press I could almost be fooled into thinking the market is still booming.

Nor is it just a central London or uber-prime phenomenon. The appreciation in value of my Hornsey house has kept up with the trend in values in fashionable areas like Kensington. It seems you can pick a house in London with a pin and do well.

Ubiquity of £1m houses and £1000 a square foot valuations
I see two things happening in London. First, is the ubiquity of £1m properties. Family-sized houses or apartments located almost anywhere in non-grotty areas are increasingly in with a shout of making £1m. In the most fashionable neighbourhoods you may struggle to buy more than one bedroom with £1m.

Second, is the spread of £1000 a square foot valuations. At the moment £1000 a foot is a base line level for the better parts of London but as the top end of the market soars into the £2000, £3000, £4000, even £5000 per sq ft range I think £1000 a square foot could become ubiquitous for any reasonably well-located and presented properties.

This, in turn, will influence the rest of the country. There is strong underlying demand for all sorts of property from country houses to anything in university towns, market towns, beach locations and unspoiled villages. Fundamentally the property market in large chunks of the UK is tough for buyers; there just isn’t enough of the good stuff to go around.

Line of least resistance for property prices is up
My conclusion is that the natural direction of UK property values is strongly upwards. However far back you go property values in the UK seem to be compounding at a double figure percentage rate. One widely-circulated property newsletter claims that UK property, come rain or shine, doubles in value roughly every seven years. I think that is probably about right though, for some neighbourhoods, it has been too cautious.

The progress comes in fits and starts creating the impression of a more frenzied boom than is actually occurring. The bad times reflect recessions, rising interest rates, monetary squeezes and, possibly, in the very short term, the climate of opinion created by press comment. At the moment we have a modest monetary squeeze and a gloomy press.

This has been enough, on the basis of what I suspect are dubious national statistics, to bring about a modest fall in house prices of all types. The implication is that as and when the gloom lifts house prices could start to move ahead again, perhaps quite strongly.

We are all going to be property millionaires
In any case even when the national statistics are negative the price of the house you want to buy may be going up not down. One estate agent did a study of price trends in Halsey Street in London’s Chelsea.

They sold number 39 for £690,000 in 1996 and £980,000 in 1998. Over the same period national house prices were supposedly declining. Incidentally the last house to sell in Halsey Street was in July last year; it went for £4.25m.

My final conclusion is that UK residential property prices will keep climbing unless there is a dramatic change in the external environment. This means change on the scale of punitive taxation for non-doms, leaving the EU so we can slam the door on immigration or tearing up the planning rules so anyone can build anything anywhere. Unless one of those highly improbable things happens I expect this boom to run and run. We are all going to become property millionaires.

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