The London property market is booming. Property prices have risen by 9.7% in the last year and there is no sign of any decline. Such large price rises are, of course, only happening in London, not the rest of the UK, where property price rises are lower the further you are from London (in Scotland prices are actually falling). But the same is happening in other large cities such as New York. Prime real estate in big cities has never been so expensive – and so desirable.
Yet people are leaving London. Both the FT and the NY Times carry opinion columns by disgruntled journalists who have decided the cost of property in London is way too high and are moving elsewhere. And they report that others are doing so too. Here’s Michael Goldfarb in the NYT:
“Matt, who had been looking for a house for more than three years, summed up the reason for leaving best: “I don’t want to be a slave to a mortgage for the next 25 years.” Given the astronomic rise in house prices here, he wasn’t speaking metaphorically.”
So if people are leaving London, how do we explain such enormous price rises? Ordinarily we would expect what the NYT calls “London’s great exodus” to cause prices to fall, not rise. But there is a simple reason, and it is due to the new role of property in the global economy. London’s prices are rising at the same time as its residents are leaving for one simple reason. Property in these city centres no longer exists to provide homes for ordinary people. It exists to provide safe, high-yielding assets for the rich. As Michael Goldfarb points out: