London: Bubbles vs Spikes
When someone says "it's different this time" it's time to run for the hills. So, there is every chance that another property bubble could be inflating at the moment. But the existence of bubbles doesn't mean there are not long-term trends at work, and the London property market looks more like Google than Clickmango.
London property prices have less to do with interest rates and buy-to-let speculators than they do London's emergence as the world's leading city.
Thomas Friedman argued that the world is flat, with technology and freedom movement of capital and labour levelling out the differences between countries. Richard Florida pointed out that the world is spiky, with clusters of talent forming in the world's greatest urban centres, encouraged by economies of scale and the network effect of the interactions which drive the service sector, innovation and culture. Pick any measure of economic activity - wealth creation, innovation, job creation - major cities are responsible for a rapidly increasing share. Jones Lang LaSalle reports that 50% of all the world's commercial real estate investment now goes into just 30 locations (cities). The spikes are getting bigger and bigger and London is the spikiest of them all, the city best-placed to capitalise on the emergence of BRICS, MINTs and all the other beneficiaries of Friedman's flat world.
If you're worried about "London vs the rest of the UK" then here are some terrifying figures, reported in the Standard last week:
Two in five of the 250 largest companies in the world with a main or European headquarters have it in London, according to a study by Deloitte seen exclusively by the London Evening Standard. That is five times as many as pick Paris, the second-most popular city in Europe...
The study shows that London also come out the winner as a destination for top talent; nearly half of all high-skilled workers in the top five European business cities are employed here. Paris again comes second, with 19%, followed by Berlin (13.7%), Milan (11%) and Frankfurt (9.8%).
London's not-only pulling away from the rest of the UK, it's pulling away from the rest of Europe, becoming even more dominant in this continent than New York City is in the US. London's economy is increasingly diversified, managing to hang on to the international top spots (alongside NYC) in banking, insurance and professional services, whilst employing more people in the tech sector than anywhere else in Europe - approximately twice as many as New York. Combined with media and telecoms, London's tech scene is worth 8% of the UK's GDP, reckons Deloitte. The life sciences, design, marketing, fashion, tourism, architecture, engineering consultancy, education - pick a growth industry in the service sector and London is fast-growing or already pre-eminent, while the fact that London is still not even in the EIU's top ten most expensive cities in the world list suggests the capital is a long way from overheating.
This isn't just BC trying desperately to reassure ourselves that we didn't take out a reckless mortgage, this is to say that London's emerging housing crisis is not going away any time soon. In the next few years, London's population is due to grow to 10 million. The city will be teeming with talented, ambitious and in many cases wealthy new people. The jobs will be there for them, but they will all need somewhere to live, essential services and a means of getting about. Lewisham is swelling with people fleeing from more expensive parts of London's inner core, pushing up house prices faster than most other parts of the capital. Again, this is a long-term shift, not a short-term correction.
These are the big challenges that the upcoming Council elections will need to address. Lewisham Labour's manifesto pledges to build 500 new Council homes and "deliver" 2,000 new "affordable" homes and new primary school places, though there is no detail behind these commitments. More on all the party manifestos coming as part of our election coverage.
In the mean time, if you own a home in zone 2, consider yourself very lucky.
