Seen through London eyes, much of the property throughout the rest of Britain is relatively inexpensive, cheap even. Anthropocentric perhaps but, to an extent, London has every right to think itself the most significant. London is a capital city whose sphere of influence encompasses South-East England: everywhere else, as politically-incorrect Londoners might say, is ‘provincial’. Anywhere ‘north of Watford’, a benchmark for the end of civilisation as Londoners know it, is ‘out in the sticks’. Some people are cashing in on high prices and relocating, but many people love London so much that they could never stray beyond its motorway box despite the stress and congestion tiring them out. Notwithstanding hype for provincial cities, for example Birmingham, Nottingham, Manchester, Leeds. Liverpool, and so on, the only thing Londoners hanker after is the chance to get away from it all, not more of the same.
Symbolising prosperity and success, Central London nowadays offers majestic curtain-wall glazed office buildings, heavyweight shopping malls, five-star hotels, high-end restaurants, and luxury apartments, but for those that in the suburbs, the change at the top has, in my opinion, speaking as a Londoner born and bred, not all trickled down for the better.
When I lived in West and NW London (not both at the same time I hasten to add), it used to be that much of South London, East London and North London were the scruffy suburbs. Now, dinginess has spread to more of West and NW London. Historically, West and NW London were the last fields to be built on. The development of ‘Metroland’ accelerated during the 1930s with new housing estates in tree-lined roads and for each locality supporting shopping centres comprising parades of shops with residential upper parts. The building construction, typically solid brick walls, pitched tiled roof, pebble-dash rendered elevations, was showing signs of age even after 30-40 years during the 1970s/1980s when my office was in Harrow and now, approximately 80 years since the first brick was laid, has not endured particularly well. Hard to tell whether lack of maintenance is symptomatic of high mortgages and no cash, or owner-occupiers and buy-to-let landlords past caring about house-proud, perhaps occupants not wanting to draw attention to inner affluence; even so there is paint peeling off the woodwork and the area generally presents a somewhat decrepit external state of neglect. In London’s suburban landscape, passing trade may not be lifeless but once thriving shopping streets are tatty, shop fronts in need of a clean-up, litter and graffiti is common-place; trees on their last legs. The price of a run-of-the-mill 3 bed semi with shared drive and all mod cons (a gas central heating and double-glazing) that seemed pricey at around £15,000 during the 1980s is now around £400,000; they must be joking, surely? To keep pace, a shop in an unpretentious NW London suburb where in the early 1980s for a small multiple retailer tenant I fought tooth and nail to reduce the rent of 450 sqft to £3250 pa is now let at £25,000 pa to a business that judging by the shop-fit and stock display doesn’t look as though it has two pennies to rub together.
For air-quality, friendliness towards strangers, and driving-pleasure, I prefer the relative peace and solitude of the countryside even though where I lived in London was also fairly quiet, apart from the incessant background hum of traffic along the North Circular Road. In the countryside, one can hear the start and end of each noise whenever silence is pierced. But despite my preference for a small market town, I don’t fit in with incomer ideology: I’m not one of those townies that has a romantic view of the countryside, wanting to preserve largely unspoilt farmland from the blot on the landscape of polytunnels and onslaught of developers as if living museums.
I don’t especially like the impersonality of concrete blocks but mention London and, despite the fact I’ve no desire to live there again, I come alive. Once a Londoner, always a Londoner and it shows in my conversational style and attitude towards professional advice. In my mind’s eye, immediately I can picture the shopping streets and urban landscape of London postal districts and its boroughs and how they relate to one another, but tell me the property is in BS5 or B15 or L11 or some other provincial postcode and likely I’ll have to start from scratch: look at a map, navigate roads that are unrecognisable and meaningless to me, add to the knowledge of places that I carry around in my head but as a stranger, without affinity.
In London, which incidentally is not one place, but numerous villages that have become engulfed by a spidery road and transport network, each suburb has its own identity, in some cases its own people – more than 300 languages are spoken within the boundaries of London – and the political leanings of whichever of the 32 London Boroughs is responsible for local government leaves a quasi-autonomous mark on the ideology of each suburb within the remit. Add to the mix the Greater London Authority, the top-tier administration and strategic regional authority responsible for about 12.5% of the UK population and it all adds up to an economic power-house.
London’s population is approximately 13,000,000. To put that into perspective, England’s second city is Birmingham at just over a mere 1,000,000 and the third is Leeds at around 750,000. Thereafter, from Sheffield with about 550,000 the population of provincial districts pales into numerical insignificance to around 300,000. London wins on sheer numbers and collective buying power.
Familiarity with a place is more than immediacy, it’s about where each locality fits in with the pricing heritage. Since moving from a London borough whose population exceeds that of the two counties that administer the small rural market town where I live now, I’ve become acutely aware of how much the magnitude of London is underestimated by talk about London property prices as if a barometer for everywhere else.
To compare property prices between London and everywhere else in Britain as a means of assessing whether inexpensive or cheap misses the point. The determining factor for gauging inexpensive or cheap is not the price of a particular property, but the average income and collective spending power in each individual locality. Property prices, or rather “property pricing”, work off two factors: (1) charging what the market will bear and (2) objective valuation by informed valuers. Charging what the market will bear is a variable that depends on the state of the market; commonly known as the forces of supply and demand.
A consequence of same rates of interest nationally is challenging for prices. Despite an abundance of media reports about differences in property prices from one end of the country to the other, an average person’s grasp of the intricacies of property market pricing is lacking. Pricing is the province of the seller, not the buyer. When a cash buyer from another part of the country buys a property in a place new to that buyer they enter a market from the point of view of what that particular buyer could afford, as distinct from what the locals could afford. Which is why, in many places, local people have been priced out of their own market by buyers from further away paying more.
Relocation and gentrification is nothing new but in the past it was largely confined to run-down areas in cities and large towns where it served to improve the appearance of scruffier areas. Provincial towns and villages had manor houses and country houses for the aristocracy and wealthy landowners, but otherwise the living standards for the local (peasant) population was comparatively poor, often stricken. Since the early 1990s, emigration from cities and large towns of educated affluent people, often retired or semi-retired, wanting to live the dream of lording it in traditionally low-priced areas has altered the balance and distribution of wealth. Long gone is a time when income, spending-power and class distinction could be accurately pin-pointed to where people live. Increasingly, people can separate life-style from working environment by living in places that offer good value for money despite some travelling distance from work.
I am one such example. The bulk of my work is in London and the South-East, despite my being based about 120 miles away. I relocated to this part of the world not for wanting good value for money, so much as air-quality and room to breathe in an uncongested environment. Even so, property here is good value for money compared to London. Recently, I was invited to a home in a desirable NW London postcode where the price of properties in the same street ranges from a £25M to £65M. For that sort of money, along with all the trappings, such as security grills on the windows, I’d also get a postage-stamp back garden and off-street parking front of house. Whereas in this part of the world, about £6M was paid for a Georgian country estate comprising 13,500 sqft mansion, four cottages, outbuildings, tennis court, set in 187 acres. For the more modest £1.5M that a friend paid for a flat in Hampstead, NW London, in this area about half that amount could buy a 5 bedroom 5 reception room detached house on nearly 2 acres.
Actual and increasing aspiration for work-life balance and overall life-style has a lot to answer for. It has distorted pricing through having driven a wedge between those that can afford to practice the principle and those for which quality of life remains a pipe-dream. Higher-priced residential properties generally offer better value for money than the lower priced for which there is a minimum price almost regardless of desirability. Cash buyers can be choosy but home buyers that can only afford to buy if they can get a mortgage are limited to properties whose market value is determined by valuation surveyors and the lender’s assessment of the borrower’s ability to repay the loan.
Traditionally, the reason that people emigrated from the provinces to London was to seek fame and fortune. Over the centuries, numerous businesses have set up in the industrial heartlands of Britain and become successful, but opportunities for gainful employment have never really been as plentiful in the provinces as in London. Scope for advancement and career prospects are more limited. The money is simply not available to the same extent out in the sticks as in London. Even with all the city centre regeneration and major redevelopment projects that provincial cities and major towns are currently undergoing, there is, at least in my opinion, a finiteness about it that doesn’t apply to London.
That finiteness translates into limiting potential for both rental and capital growth for commercial property. Office and industrial rents tend to be on a regional sliding scale, depending upon size, proximity to major transport communications and other factors specific to those sectors. Shop rents, however, are more specific. Trading position is keener. £25,000 a year for a small shop some way away from the best position would be laughable outside London.
If prices were logical then on paper a £40,000 residential property in a run-of-the-mill street in an industrial town in the north is undoubtedly cheap compared to what the same specification house would fetch in London, but property prices are not logical; there is more to it than that. It doesn’t follow that a house that sells for £5M in London would, assuming the same spec, fetch anything like that amount outside London. Viewed from the point of view of a London investor where prices reflect demand for the capital, the same level of interest rates nationwide can give an impression that property prices elsewhere are inexpensive or cheap, but the lack of liquidity in the local market ought never be underestimated. It’s not that a buyer on £40,000 a year wouldn’t jump at the opportunity to buy a 2-up-2-down terrace house in the regions at £40,000, simply that buyer wouldn’t want to. And even though it might make sense on paper, it wouldn’t make sense in practice. The lack of demand for the local market should also never be underestimated: a rack-rented commercial property yielding 9% or so isn’t necessarily cheap.
Where people with old-money or high earnings want to live boils down to collective taste. We choose our friends for the benefits we get from their company, we like to live in surroundings and amongst strangers that complement. The same principle applies to tenants of commercial property, where corporate image is an important constituent of the business plan. In essence, it’s all about direction.
In my opinion, direction is perhaps one of the least considered aspects in the pricing of property. The objective valuation approach, that somewhere someone who would want to buy the property, is a convenient theoretical way to avoid having to identify who precisely would want to the property, but it overlooks differences in practice. Differences come about as a consequence of direction. Therefore, the direction in which the market is heading cannot be evaluated as if one big market where everything that is happening anywhere is automatically reflected in the prices for everywhere else, but as dozens perhaps hundreds of different strands each going their own way and ending up either making their owners better off, the same as to begin with, or worse off.
A parallel could be drawn between the current debate about whether consumers need a vast choice of products and services and the number of places in Britain where property could be bought. Approximately 2,000 villages have disappeared over the centuries, there is no reason why the number of cities, towns and villages that exist now should endure for ever. Hence, a logical approach to evaluation of property prices by reference to what is happening elsewhere ought to allow for that. Credit distorts the value of money by making purchases affordable over the duration of the loan so when easy credit chases anything that looks cheap or inexpensive by comparison there will come a time when desire regains its senses and the gut feeling or intuition about where a market is heading and more importantly its participants will make investors and occupiers alike realise just how wrong or right they really are.
The question for any investor to ponder, I suggest, is where you think the British economy is heading and how best to align the type of property you can afford with that direction. A less-considered more random approach of buying anything that takes your fancy might prove successful but more by luck than judgement.