The story behind the new North / South divide

House prices in London and the South-east are picking up. But that won't necessarily benefit anyone in the rest of the country
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The Independent Online
In the old days of "boom and bust", house price recovery used to ripple out like a series of contour lines from a peak in London, taking a year to reach far-flung corners like Cornwall and Cumbria. A map of the present recovery would look very different. Instead of ripples, there would be a series of short spokes radiating from a hub in the capital along the major commuter routes to places such as Winchester, Guildford, Newbury, Oxford and Cambridge. And over the past two years, that map would barely have changed.

Home owners can no longer assume that what happens in London will happen to them sooner or later, depending on how far from the capital they live. Instead, the market in London and the places where London workers live has a dynamic all its own. With the market now based on the economics of supply and demand and job security rather than on peaks and troughs in inflation, has the geography of the property market changed for good?

The central London market began its recovery in the autumn of 1992, when Britain pulled out of the ERM. Foreign buyers took advantage of low prices and a cheap pound to buy in prime residential areas. Prices in those areas have risen 33 per cent in the last three years, according to Savills Research, and are now back in line with their historical trend.

At the same time, London has been growing in importance as a major financial city. Three of the last four years - including this one - have seen large bonuses paid out in the city. They tend to feed directly into property. It is no coincidence that Kensington, the London banker's neighbourhood of choice, has seen the greatest house price increases in Britain in the last three years.

The major factor preventing house price recovery on a national level has been fear of unemployment. This has had an impact on London as everywhere else, but it has been lessened by the sheer numbers of potential employers in the capital and the heavy numbers of jobs in areas like law, which are relatively recession-proof. As a result, London may have a large number of forced sales, but it also has a ready market in buyers.

When London prospers, the effect is felt most swiftly in the heartlands of the Home Counties commuter belt. According to Knight Frank, the average price of a six-bedroom period farmhouse in Berkshire is pounds 600,000. Strutt & Parker put the average three-bedroom cottage in half an acre at pounds 200,000.

John ffoulkes, who runs Hamptons' office in Sunningdale, said it took only a couple of months for the feel-good factor to move from London to Berkshire. His office saw the recession bottom out in 1993. So far, this year looks like being the best year since.

Normally, the impact of rising prices in the top commuter towns would encourage buyers to look further out where prices are lower. This time round, that does not seem to be the case. London buyers do not seem to be prepared to look at counties such as Leicestershire, Suffolk and Wiltshire if they cannot afford to be nearer the capital.This may be a case of chicken and egg: buyers are nervous of committing themselves in areas where prices do not seem firm; therefore the prices stay soft, or it may be because the ever-lengthening working day means people are less willing to commute further.

The current recovery has been seen overwhelmingly in quality property, particularly expensive family houses. One reason London and the Home Counties have prospered is because they have a far higher proportion of such homes than other regions. But even the smartest locations outside the South- east have been experiencing difficulties. Estate agents in Solihull, one of Birmingham's smartest suburbs, and Congleton, in the south Manchester stockbroker belt, report prices only increasing marginally if at all over the past two years. North of Leeds, where the market has been helped by the growing number of financial services jobs, prices are still well down on their peak of 1989.

In the South-east, the recovery is filtering down from the top of the market. The latest issue of the Nationwide Housing Finance Review - which reflects the bottom, rather than the top of the market - shows average house prices in Greater London rising from a low of pounds 67,000 in the third quarter of 1993 to more than pounds 72,000 by the end of 1995. In the North- west, the graph has fallen in an almost continuous line from pounds 55,000 in 1991 to pounds 49,000 now. The graph which shows the gap between regional house prices and the UK average is expected to increase over the rest of the century.

However, that graph masks a separate trend which should bring heart to many regions far from the capital. Apart from London, there are other hot spots where property is in demand and confidence is rising. Leeds is one, Edinburgh another and Cambridge yet another. What these cities have in common with London is white-collar jobs. People may still fear redundancy, but they have a better chance of finding work in a city with a variety of potential employers, which makes them more confident about taking on a new mortgage. The London factor does not mean a reinstatement of the old North/South divide which dominated the Eighties. Instead, the geography map of the future looks more likely to feature a series of wheels with their hubs in cities like these and spokes extending into their most desirable commuter areas.

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