Magazine article The Spectator

Boom and Gloom

Magazine article The Spectator

Boom and Gloom

Article excerpt

IF EVER there was a party that has the air of having gone on too long, it is surely the decade-long binge attended by English home-owners. There have been cool winds blowing through the economy this year, yet inside the double-glazed, cavity-wall-insulated home of the average Brit it has been hard to detect so much as a draught. No matter the job losses in manufacturing or the shattered fortunes of dotcom entrepreneurs; behind the net curtains the champagne glasses are still clinking, and the mood is so euphoric that one wonders whether illegal substances might be involved.

According to the Halifax, the average English property has risen in value by 4.1 per cent in the past three months alone. In London the quarterly rise is 7.1 per cent. That is on top of a boom which has seen the price of the average English property rise by 75 per cent since the mid-1990s. It is hard to overestimate the implications of these dull-sounding figures. As a means of accumulating wealth, owning a home is outstripping the gruelling business of commuting to a job. The average Londoner has earned 5,750 in the past three months, the average London property made its owner 11,090; moreover, the profits made on your main residence come free of income tax, capital-gains tax or national insurance contributions.

For those who have managed to swing invitations to the party, it has been great fun. If you stretched yourself in 1992 and bought a house in central London for 335,000, you can look forward to another bash: you have just qualified for membership of the club of property millionaires. For society's Cinderellas, on the other hand, the misery is intense. From the cold stone floors of their rented digs, the only consolation is perhaps the suspicion that the revellers of the property market will soon be made to pay for their excesses.

In this, they may not be disappointed sooner or later. But the wonder is that the crash hasn't happened already. The research department at estate agents FPD Savills - an organisation which hardly has a vested interest in talking down the market - admits that its soothsayings have been hopelessly pessimistic. At the beginning of the year it predicted that prices of prime London properties would rise by a modest 5 per cent this year, citing the downturn in the stock market and the expected withdrawal of American corporate clients from the rental market as London operations were scaled down. Yet in the first six months of the year prices have actually risen by 9 per cent.

The company says it failed to appreciate that, paradoxically, economic bad news would stimulate the property market. Investors have piled into property, it says, because they have become fed up with poor returns on the stock market - the FTSE-100 index is now 800 points lower than it was in July 1998. While it may be reassuring news for the average punter concerned that his heavily mortgaged semi is about to plunge in value, there is also something rather worrying about the assertion that the property market has become the new stock market. The fortunes of those of us who buy houses because we want a roof over our heads have become hopelessly intertwined with the fate of those who buy property purely for a financial return. At the upper end of the London market, just under a third of buyers are doing so primarily as an investment. When you are asked to part with L200,000 for a small one-bedroom flat in a seemingly run-down part of south London, it is tempting to think that it commands such a high price because the area is coming up, that the cappuccino bar at the end of the street is destined to become the hub of a highly fashionable district. …

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