THE BLOG

Out of Control Property Prices: A Serious Threat to London's Economy

28/08/2014 15:23 BST | Updated 28/10/2014 09:59 GMT

Figures published this week show that 160,000 new property millionaires have been created in the capital. Whilst this no doubt came as great news for people who own one of those homes, the rate of house price growth is indicative of wider problems in the housing market - especially in our capital.

There are of course those who believe that rising property prices are only a good thing. Boris Johnson recently described soaring house prices as "the right problem to have", despite the fact they are locking millions out of home ownership and pushing many out of the capital all together. Johnson aside, the view of most rational commentators is that property values spinning out of control is highly dangerous for London's economy and for social mobility in our city.

I rarely agree with Vince Cable, but his comments this week that surging house values would undermine the economic recovery were highly pertinent. While double digit house price growth is great for those already on the housing ladder, for those unwillingly stuck in the rented sector (which, in years to come, is likely to include these millionaire homeowners' children), owning your own house is becoming an ever more distant dream.

And for these people stuck in London's private rented sector, the situation is not pretty. Many private renters in London are paying eye-watering sums for the privilege of living in poor quality properties with bad landlords. High costs in the rental sector are not only driven by exorbitant levels of rent, but by unreasonable upfront costs charged by letting agents too.

Despite London's housing crisis being one of the black marks on Boris Johnson's mayoral legacy, the key to making housing in our capital more affordable is straightforward and widely agreed - to increase supply and ensure this supply is genuinely affordable to your average person.

Yet the Mayor's record in this area is reprehensible. Last year just over 21,000 homes were completed in London, the lowest figure in recent history and well below the 49,000-62,000 homes per year that the Mayor's own estimate of need says are necessary. And what of the homes that are in the pipeline? Studio flats in the One Blackfriars skyscraper, not yet built, are already selling off-plan for in excess of £1 million. This does not meet the housing needs of ordinary Londoners, but rather the financial demands of property speculators.

What is more, sky high property prices like this are making inner London the preserve of the super-rich. With people increasingly having to move to outer London just to be able to afford to rent or buy a property, our capital is in danger of losing its distinctive character - that of a diverse, multi-cultural and socially mobile city.

To alleviate the crisis, the government needs to lift the borrowing cap on councils to enable them to build new homes to their full potential, and take action to tackle land banking by big private developers. We must also support proposals to make renting in London more stable and affordable by introducing three year tenancies as standard, with caps on annual rent increases, and a ban on lettings agency fees for tenants.

Finally, it is crucial to remember that the housing crisis is not just a personal problem for those priced out of the market; it is a threat to London's economic competitiveness. The cost of housing is now a major business concern, as companies need living in London to be affordable if they are to attract the best employees.

So while London's new property millionaires may be popping champagne corks today, if this trend continues unchecked, London will begin to lose businesses to cheaper cities both in the UK and abroad.