Mayhem in the housing market

A new bubble is growing before we’ve paid for the fall-out of the last

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The Independent Online

According to the blurb from Hamptons, Hardy Mansions is “in the heart of Notting Hill”, one of London’s trendier districts.

The apartment block is part of the Portobello Square development, located close to the Notting Hill tube station. It “offers the best of city living within a village-like atmosphere with many luxury brands of shops…” It provides a great investment opportunity in “prime Central London.” Prices for the 1, 2 and 3 bedroom apartments and penthouses start at £560,000.

The advert, which appeared in Hong Kong, is aimed at Asian buyers. To help them locate Hardy Mansions, there’s a map.

It’s perhaps just as well the ad was not published in the UK. Because if it did it would be ridiculed. Hardy Mansions is at least a 20 minute walk to Notting Hill station. There are no luxury shops nearby – perhaps they come later. Instead, the site is close to council estates. For those who know their London it’s next to Trellick Tower, in the middle of the Carnival zone.

The accompanying map makes it appear as though Hardy Mansions is in the middle of everything. It’s not. It’s Zone 2, in the west. The phone numbers are 0208. So much for “prime Central.”

But the prices definitely are prime. I would say that £560,000 for a one-bedroomed flat at very much the wrong end of Notting Hill is 50 per cent over-valued.

However, relative to a residential developer in London at the moment, I’m an impecunious journalist. Hardy Mansions will sell, as virtually any property in the capital appears to.

Estate agents are making a killing, peddling an ersatz, Downton Abbey view of London to overseas buyers. Some adverts even proclaim living in London is to reside “in the seat of aristocracy, history and power.” Presumably, to purchase a London property is to buy yourself aristocratic status. In 2015, the class system, thought to have been abolished in the era of John Major and Tony Blair, is very much alive and well – so much so that it’s being used to sell homes.

There’s no end to the madness. This week, an estate agent was forced to pull an advert for a £737 a month “self-contained” flat near Kings Cross station after receiving abusive phone calls from outraged members of the public. Photos of the studio flat showed a small, white-walled room, furnished with a dining table and chair, a wardrobe, a hob and sink - all adjacent to the prospective occupant’s single bed. The front door was at the foot of the bed.

An advert posted by Relocate-Me on property website RightMove described the property as a “modern studio apartment” which comes “fully furnished” and “complete and fully self-contained with its own en-suite bathroom and kitchenette”.

While the ad was withdrawn, it did not stop Steven Boochoon, a spokesman from Relocate-me, pointing out they’d had “a fair few people who were keen” on the property.

Clearly, despite the fact we think it’s madness, plenty of others are prepared to suspend any doubts they might have and join in the frenzy. But this surely ranks as one of the most insane periods ever: a new bubble is growing before we’ve even paid for the fall-out from the last one’s collapse. That takes some beating. The early 1990s housing crunch stuck in everyone’s minds for nearly a decade. Not this time – the woes of 2008 have been forgotten in a flash.

Not everywhere. The craziness is confined only to London. In the rest of the country, reports the Office for National Statistics, the pain of the crash is still being felt. Prices remain lower than they were six years ago. Doncaster is not booming.

This two-speed market creates difficulties of its own. While London is over-heating, the rest of the country is frozen. Trying to slow one down, and at the same time speed up the other, is a nightmarish task.

Tighter credit and higher interest rates will make the situation outside London even worse. Likewise, relaxed planning laws, as contained in the Infrastructure Bill outlined in the Queen’s Speech, designed to boost house-building in the regions, are likely to fuel the capital’s boom.

So, we come back to the moving of civil servants out of London, but that’s been tried before and is of marginal benefit (and besides there are not that many public sector workers left to relocate, and it takes forever). We could re-introduce the sort of tax breaks that existed in the 1960s and 1970s to encourage private employers to relocate staff out of the south east – though again that had only limited success. And we could also look specifically at property taxation, such as the mansion tax, designed to target London excess. This, too, is of questionable effect, and is perceived as unfair. Politically, it seems a non-starter.

In truth, there is little that can be done to deflate the London bubble, not in an orderly manner, not immediately, and not in such a way that the entire nation will not also suffer. We’ve got no choice, other than to watch the lunacy unfold, to witness prices getting ever higher, and the estate agents’ blandishments becoming ever more preposterous. As many central bankers used to argue, you cannot control markets, and all the authorities can usefully do is be ready to clear up the mess when it crashes. It was a philosophy that became discredited for obvious reasons in the recession, but it retains a certain amount of force.

There is a glimmer of hope, a possible upside that may emerge from the wreckage of the bubble bursting. In the late 1990s, over-investment in global fibre optic networks meant that after the dotcom crash, a use had to be found for them. The result was they were offered to the public, resulting in consumer broadband at lower prices.

Something similar may occur with London property. The glut of building – and it is a glut, as anyone in the capital can easily observe – will be followed by plunging prices, as indeed happened in the last real downturn in the early 1990s, when even Canary Wharf went bust. Suddenly, all those “luxury” apartments will become affordable. Even Hardy Mansions, but this time the new owners will be under no illusion as to what it is, exactly, they’re buying.