London's Housing 'Crisis' Is Not about the Cost of Homes; Lack of Supply and the Insatiable Demand for Living Space in a Popular City Are the Real Problems

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Byline: Simon Jenkins

BACK TO panic stations everyone. "London house prices set to fall," cries the headline. Already they are down 2.9 per cent in Westminster and 2.7 per cent in Kensington and Chelsea since the start of the year. The market is off the boil. The bubble is over.

If one thing mesmerises London's chattering bourgeoisie more than house prices rising, it is house prices falling. For the past year dinner talk has been of soaring values, booms, bubbles, tulip fever, demented offshore oligarchs and Asian princes. They sobbed as yummymummies complained their infants could not reach the first rung on the Chelsea housing ladder.

Now the bubble has burst and the wailing has changed its tune. We hear, "Our house has gone down two whole per cent in six months, and we've still got the Poles digging the basement." Suddenly the trustafarians are victims of negative equity. What will the Government do to help? It surely feels our pain from over in Notting Hill.

Last week's batch of housing surveys showed London house prices for April/ May falling in 12 of London's 33 boroughs.

The annual figure is still up some 13 per cent but in most boroughs this has put prices only back to the 2008 peak. Mortgage approvals monitored by Nationwide are down 17 per cent on January, while 44 per cent of transactions have sellers cutting the asking price.

The steepest drops have been in Westminster, Kensington and Chelsea, but they are also falling in Hammersmith and Fulham, Islington, Lambeth, Barnet, Hackney, Ealing, Kingston, Brent, Tower Hamlets and Redbridge. A market analyst told the Standard: "The silly season is definitely over."

How should a sane person react to this news? There is little sympathy in the offshore "ghostlands" of Belgravia and Kensington. With more than 80 per cent of hotspot sales in west London being to overseas buyers, prices are unrelated to domestic market conditions. They respond instead to Dubai, Switzerland, Singapore, the state of the euro or Asian politics.

The lofty gated "communities" of global speculation, which Boris Johnson so eagerly welcomes to London, will soon tower over Nine Elms, Battersea, Earls Court and North Kensington. Their windows will stay dark and their parking bays empty. They are hardly worth advertising in the British press, and should really appear in the Land Registry merely as cash-on-reserve. This London starts at The Ritz and extends west to Earl's Court Road, like a sprawling Fort Knox, utterly unrelated to the capital's housing needs.

That leaves the rest of us. Here house prices are simply recovering from the credit crunch. Government housing subsidies have had minimal impact in London. Treasury figures show barely 350 Londoners benefiting from Help to Buy. Yet last month estate agent Savills joined the chorus of panic, declaring there was "not a bubble but a crisis". There was "a shortfall of 160,000 homes" in the south of England. Similarly London is said to "need" 14,400 more homes than are planned by the Government "to meet demand". …