Britain's regional house price gulf now means that a parking space in London is worth more than a house in Middlesbrough...
If I was forced to name my favourite road sign (competition is not exactly fierce) it would have to be the placards dotted along the M1 that declare boldly: THE NORTH.
Perhaps it’s just the starkness of these signs, but anytime I pass them, I can’t help but imagine disgusted Londoners tutting in dismay that there is no route to the Edinburgh festival that avoids going through ‘the n word’.
I joke, of course. But still, a gulf certainly does exist between the two ends of England, not least when you look at the property market.
Parking spaces
Back in February I wrote about the UK’s most expensive car park. Yes, for the use of a six metre long slab of tarmac in Knightsbridge you’ll have to shell out the equivalent of a £450,000 salary.
And parking costs in the capital certainly haven’t been getting any cheaper since then.
New figures from ING Direct show that a parking space in Central London now costs more than a whole house in Middlesbrough. Based on average prices, the research puts the value of a parking space in Kensington and Chelsea at £95,800. That’s £13,500 more than the average sale price of a house in Middlesbrough.
ING Direct has cooked up these figures by putting together percentage premiums that an off-street parking space adds to a property’s value. According to surveyors at eSurv, a space for a car will add 10% to the price of a home in Greater London.
So with an average property price of £958,000 in the Borough of Kensington and Chelsea, an off-street parking space is – theoretically – worth £95,800.
Now, it’s up to you whether you buy ING’s logic or not. Personally, I'd suggest that slapping a straight percentage parking space premium on all properties, regardless of their price, seems a little simplistic. But what this research does illustrate is the ludicrous price of property in the capital.
House price gulf
London is something of a self-contained bubble when it comes to house prices. And it’s a bubble that refuses to burst, despite the best efforts of a sub-prime mortgage crisis and a worldwide recession.
The latest House Price Index from Rightmove puts the average Greater London property price in December 2011 at £434,871. That's down 2.2% on November’s figure, but up 6.4% annually. Conversely Yorkshire and Humberside’s average price sits at around a third of that figure: £144,767, down 3.6% on last year.
Prices in the South East are also strong and relatively steady. Despite a 6.2% month-on-month drop, property prices are still 1.4% higher annually at £289,014.
So why does this North-South gulf exist?
Job supply
Job supply plays a big part in jimmying open the regional house price crack – especially in the current post-crunch climate.
As I reported back in July, the workforce of the North West and West Midlands were hit hardest and fastest by the recession. Unemployment climbed by 4% and 4.7% in the two regions respectively between June 2008 and 2010. Conversely the lowest rises were seen in the South East (2.1% increase), East (2.3%) and in London (2.6%).
This is compounded by the fact that the majority of jobs created since 2009 have been in the South East of England. This increased volume of jobs leads to higher levels of demand for property and loftier personal incomes, and hence higher house prices.
But there are more factors at play, especially in the London bubble.
London bubble
Figures from the London-based property consultant Cluttons show that Prime Central London house prices are now just 2.48% below the 2007 market peak.
High employment levels contribute to this buoyant market. But it’s not the only factor.
Knight Frank identifies non-UK buyers as a key reason for high London property prices. Instability in the eurozone and Middle East has spurred on many well-heeled individuals across these regions to buy up premium property in areas such as Mayfair, Belgravia and Chelsea, relatively safe investments.
This is compounded by what Henry Pryor, a celebrity home buyer, calls the ‘trophy property’ effect. Put simply, premium London properties are not just homes and good investments, they’re also fashionable status symbols that every uber-rich businessperson the world over wants in on.
But will it always be this way?
The future
Commentators are divided on the future of property prices in the capital. On the ‘trophy property’ subject, one could imagine that – as fashion always does – trends will change and prices will drop. But will plush penthouse pads ever really go out of fashion?
Looking across London, the market may not be as strong and stable as many think.
Rightmove stats show a house price divide across the capital that’s even wider than the regional gulf. Kensington and Chelsea sits at the top of the chart with an average price of £1,956,710 while Bexley is at the bottom with £208,841. That’s a ten to one difference in property prices within one city, a gap even wider than regional variations. Surely, a gulf this large suggests extreme over-valuation in certain areas.
And what of the countrywide divide?
Well, one would hope that as areas wounded gravely from the recession will begin to heal, jobs will be created, employment levels will rise and – combined with a dip in current Southern price strongholds – the gulf will begin to close. Government policy designed to invigorate enterprise outside of the South East, the rolling out of high-speed broadband and high-speed rail should also help narrow the gap.
But this change will be anything but swift. For now at least, house price differences between the North and South look set to remain as stark and bare as the road signs pointing motorist towards the two regions.
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