A recent poll conducted by the London Assembly Housing Committee reveals that one in seven Londoners (14%) want to leave due to the COVID-19 crisis. Could we see an exodus of buyers to the home counties and beyond? And, if so, what does this mean for house prices and the market?
Let’s picture a scenario.
It’s a normal Monday afternoon, sometime in 2026. You’re heading home from the office after a long day. A COVID-19 vaccine was found a couple of years back so, although you’ve never returned to the office fulltime, you head in once or twice a week.
On your way into the station, you pick up a copy of The Evening Standard. The front page screams ‘London property prices fall for the fourth year in a row’. You’re headed back to your newly purchased home in one of London’s trendier boroughs, let’s say Hackney or Southwark.
Just a few years ago, purchasing a house in this part of town was an improbable dream for all but the wealthy and those fortunate enough to have inherited money. But that’s all changed.
Your area is now full of new homeowners. Young professionals. Families. Lifelong Londoners. The bad old days of ordinary Londoners being forced into decades of precarious renting have passed. The city is one again a place where people can settle and put down roots.
As a result, local communities are thriving. Your neighbours recognise you on sight. People smile at you in the street.
Commentators put London’s transformation down to two things. First, the exodus of middle-class professionals to Kent, Hampshire, Essex and beyond in the wake of COVID-19. Second, the falling demand for housing this caused and the corresponding drop in prices, making housing more affordable for those that stayed.
Sounds fanciful, right? However, if the last few years have taught us anything, it’s that what seemed impossible a decade ago is today’s reality. So, could it happen?
The Case for Falling Prices
The case for falling house prices is a simple one. The COVID-19 crisis has caused the UK economy to contract 20.4% in the second quarter of 2020. This followed a 2.2% contraction in the first quarter. And, where the economy leads, the housing market isn’t far behind.
JLL, the corporate real estate services company, has predicted an 8% fall in property prices for 2020. Meanwhile, according to the Royal Institute of Chartered Surveyors (RICS) London house prices continued trending downwards, even during the easing of lockdown measures between July and September. This makes London the only region across the UK to still experience price falls.
At the same time, there’s been a near-universal shift to remote working in white-collar jobs. This has led to many middle-class professionals (who make up a large proportion of London’s homebuyers) considering whether they need to live in London at all. After all, why live in London when you could do your job anywhere and get considerably more for your money elsewhere?
The number of job seekers wanting to leave the capital more than doubled in June, according to the Escape the City careers advisory service. This has been mirrored by a doubling in the number of buyers registering outside of the capital throughout the summer.
The theory goes that economic contraction and an exodus of the middle classes work in tandem to create a fall in demand for houses, particularly at the lower end of the market. In turn, this leads to a drop in house prices, making housing more affordable for first-time buyers. Eventually, you end up with a scenario like the one we explored earlier.
It’s a crude theory, but certainly not impossible. What about the case against?
The Case Against
Although the idea of London becoming an affordable city to live in might be a nice one, it’s also very possible this lull in growth is temporary.
Many analysts are predicting a strong recovery in the London housing market as early as 2021. Estate agents, Knight Frank, forecasts that London house prices will jump 6% next year. Meanwhile, their competitor, Chestertons, predicts growth for inner London between 3% and 4%. There are a few reasons why this could provide a more realistic picture. Let’s take each in turn.
Firstly, the sheen might have worn off living in London during COVID-19, but the city remains one of the most desirable in the world. Were a vaccine to be found for COVID-19, London would quickly return to its role as the cultural and financial epicentre of the UK. With London back in business, pre-COVID demand and prices would quickly follow.
Second, we may not yet have seen the full effect of either the Stamp Duy Holiday (which doesn’t expire until March 2021) or conveyancers clearing their backlogs in the capital.
Lastly, the role of foreign capital in inflating London prices can’t be ignored. Middle-class homebuyers are only part of the story, just as important are overseas investors who are largely responsible for spiralling prices over the last decade.
Brexit’s fast-approaching conclusion will play a part in this. Should the UK crash out with no deal, investing in London property could become very appealing for buyers from nations with stronger currencies, leading to a mini-boom and higher prices for domestic homebuyers.
Of course, both the possibilities we’ve discussed rest on what happens in the rest of 2020. Are we about to enter a second nationwide lockdown? Can a vaccine be found? Will the double-dip recession many are predicting come to pass? And what will the outcome of Brexit be?
Without an answer to these questions predicting the future of London’s housing market is tricky. However, one thing’s for certain: whatever happens in the next six months will shape the city’s future for decades to come.