Real value of British homes doubles since 1980

The value of the average Briton's home has almost doubled in real terms over the past two decades, according to the first global survey of property prices, due to be published tomorrow.

The value of the average Briton's home has almost doubled in real terms over the past two decades, according to the first global survey of property prices, due to be published tomorrow.

But the surge, led by meteoric growth in London, was outstripped by even larger increases in Ireland and Spain.

The report, from The Economist magazine, came as a separate report warned that the capital was in the grip of a speculative boom on a scale not witnessed since the late 1980s.

The survey showed house prices rose 15 per cent last year, the biggest increase since 1988, confirming reports from the country's leading mortgage lenders.

The magazine, which has constructed a new global house price index, said that since 1980 Spain had seen the biggest rise in real terms – accounting for inflation – of 124 per cent. Britain and Ireland came second, with gains of about 90 per cent. Average prices in the US have risen by a modest 20 per cent. Germany is the only country where house prices have fallen in real terms over the past two decades, by 21 per cent.

Of the major cities, the largest increase since 1980 was in Dublin, where prices have more than tripled. Madrid followed with gains of 149 per cent, New York was up 112 per cent and London 103 per cent.

The survey also highlighted some of the reasons for the recent rapid increases. One reason, which is hidden by the bald figures, is that owners improve and enlarge their homes – which means in effect they are selling more than they bought.

The average home in the US is a quarter bigger in size than it was 20 years ago – implying that prices should have risen 25 per cent for that reason alone.

Spain has benefited from a more rapid rise in household incomes than in other countries.

The British experience is due in part to the shortage of land and tight planning controls. The construction industry says the number of new homes being built is at the lowest level for 70 years.

The recent housing market boom has been driven mainly by low interest rates. In addition, the stock market slump has encouraged investors to shift money into the relative safety of bricks and mortar.

The survey is the latest to ring alarm bells about another housing market crash. With fears of a surge in unemployment fading, The Economist said the biggest threat was a sharp rise in interest rates that would choke off demand to quell the boom.

"Yet with few signs of inflation about to take off that seems unlikely," it said. "If rates rise only modestly over the next year, house prices in most countries are likely to continue to rise."

But it warned that countries with price bubbles faced the risk of a sudden crash. It said homes in the UK were still affordable, but said that "sirens should be blaring" in Spain and the Netherlands. It said the one area of Britain where there was cause for concern was London because the ratio of house prices to incomes was "perilously close" to the 1988 peak.

That chimed with a report from the property website Hometrack, which found the average price of a home rose by 1.8 per cent in March, after rising 1.7 per cent in February. Hometrack lifted its full-year London house price inflation forecast from 6 to 10 per cent.