How Can You Explain Impossible House Prices in London
My mother-in-law came for lunch on Sunday.
She was reminiscing about her youth and the various places she lived when she was in London in the 1960’s. One of these was 34 Montpelier Walk which is a three minutes’ stroll from Harrods.
She and a few friends rented the three bedroom house for £16 per week. That’s £16 per week in total – not each. So, if one used a 5% yield (about double today’s return), the house would have been worth £16,640.
I have checked my records on the house and in 1999 it sold for £715,000 (the house was 1238 sq.ft.). What do you think the owner of the house would have said in the 1960’s if you had told him/her that it would have gone up 43 times in value in 35 years? I expect that he/she would have assumed that you had received a blow to the head.
The house sold again last year. By this time, it had been extended to 1502 sq.ft. and updated further – it was bought for £3.2m or a rather more modest increase of 4.5 times the value from 1999. But what do you think the owner of the house in 1999 would have thought if you had suggested back then that the house would be worth over £3m?
Again, your sanity would have been questioned, especially if you had suggested it in 2001 after we had had the dotcom crash, recession and the horror of 9/11.
And by the way, the house would have cost under £200 to build in the 1820’s.
Indeed, the street was originally called Montpelier Row and this extract from the Survey of London gives you a flavour for Knightsbridge of the time:
“Early Victorian occupants of the Row included artisans, labourers, servants, sailors, soldiers, musicians, dressmakers, and laundresses; a similar pattern held throughout the rest of the reign. Several houses were let as apartments by the 1860s if not earlier. Inhabitants were overwhelmingly English, the few foreigners being mostly lodgers. They included (in 1871) a French actress, a Stockholm-born family of milliners and a couple of Italians – a tailor and a print-seller; and (in 1881) two German bakers and a French chef.” https://www.british-history.ac.uk/survey- london/vol45/pp116-124
It would appear the demographic has changed ever so slightly over the years, no doubt with each generation claiming that prices could not go higher, even though history has proven otherwise - despite wars, political parties of varying incompetence and various financial calamities, property prices have increased to levels that always seem implausible if not impossible.
The press and conventional wisdom will tell you that prices can’t go higher now. They have been saying this for centuries. Do you want to believe the talking heads who have not studied the history of the property market or do you want to look at the facts and make an informed decision?
The musicians, laundresses and servants were replaced by white collar workers, who in turn were displaced by wealthier professionals, who in turn have been replaced by bankers and wealthy international buyers.
When you consider that more people are making more money in more jurisdictions and at a faster rate than ever before, do you think that Knightsbridge and London in general is going to become less popular?
“But what about Corbyn?” I hear you ask.
Yes, Corbyn is scary, but what is the probability of him actually getting into power? Very, very low. Most of his own MP’s disagree with his policies and a recent poll has shown him to be the most unpopular Labour leader ever! Indeed, Labour supporting publications like The Guardian regularly have articles lamenting how useless he is.
And this time around, he will not be up against Theresa May who ran the worst campaign in living memory. To quote The Guardian:
“There was a time when the leader’s avuncular persona was more powerful than policy or slogan. Everyone in Corbyn’s 2015 campaign, including the candidate, was astonished by the effect. He once exuded a gentleness that made allegations of fanaticism sound preposterous. Now his peevish side cuts through.
He once animated feelings of belonging and purpose in people who had felt starved of inspiration by soulless New Labour... He had Glastonbury singing his name in 2017. It wouldn’t happen now. He can still pack a town hall, but that is propping up a base, not enlarging it.
Few Labour MPs, if any, relish the prospect of an election under their leader,
although most pretend to want one. It is hard to present Corbyn as a man for the future, and May’s departure will date him even more. He will be a stale continuity figure from the time of stasis, irradiated through years of loitering ineffectuality amid the referendum’s toxic fallout. His aura of specialness has dissipated, revealing the man in all his flawed mediocrity.”
That was written in June and he has actually managed to become even more unpopular in the last few months; quite impressive when you consider the Conservatives have basically given him an open goal. And, no he won’t lead a coalition because the other parties, e.g the Lib Dems, think he is an imbecile too.
So, ignore the noise. Despite the Brexit buffoonery, London is still one of the two greatest cities in the world by some distance and is still hugely attractive to the world’s wealthy. That could change but as the investment guru Sir John Templeton once said: “The four most dangerous word’s in investing are ‘It’s different this time’”.
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Jeremy McGivern Mercury Homesearch Trusted advisers to the world’s most successful families and business people +44 (0) 800 3894280