Hi, I’m Gus Zogolovitch, and I’m the founder of Rare Space. There’s been a lot of talk about house prices going up and down, so what is the current state of the market?
What I’m telling people, and what I believe, is that house prices in London have come down quite a lot, actually. I think they’re nearing the bottom. So maybe the wider question is whether or not you would buy a place now if you had the resources to. Or should you wait?
What I say to people who ask me those questions – because I get those questions a lot – is that it depends.
Just like an economist.
I think it was Roosevelt that said, ‘Give me a one handed economist’. Because economists always say on the one hand…
The question is: should you be buying now? What’s going to be happening to house prices over the next 6 months, 12 months?
My view is that house prices have suffered. Traditionally, when we measure, we measure the amount of money per square foot, which is a better measurement than saying a 2 bedroom vs a 3 bedroom.
(A little aside on that: if you think about it, a 2 bedroom can be 600 sq ft, or – like the one we just recently sold over in London Bridge -it could be up to 1300 sq ft. I’ve even seen a 2 bedroom of several thousand sq ft.
So obviously when we’re buying something – just like we’re buying anything else – we’re buying space. So, taking a price per bedroom isn’t actually that helpful, it’s much better to do a price per square foot. That’s always the measure we look at. That allows you to compare one cramped 3 bedroom house, with one spacious 2 bedroom house.)
I’ve seen house prices I think anecdotally come down about 20% plus. A lot of people will blame Brexit. I actually don’t blame Brexit at all, because as everyone keeps telling us nothing’s actually really happened. (Yet.)
People are using Brexit in a way as a bit of an excuse, because I think everyone was nervous about what houses prices were doing. It seemed fundamentally unsustainable. And I remember back in 2006/7 exactly the same feeling in the market then as we sort of were feeling about 2016/17 which is: these prices keep going up, can they keep going up this far, etc?
In 2007 obviously we all know there was a big financial crash and that caused house prices to come down.
But of course, a big financial crash doesn’t mean people don’t need a house. They still need a house. It’s more about sentiment than confidence, and people buy when they think house prices are going up, and they don’t buy when they think house prices are coming down.
Now the slight problem is that people who are desperately shut out of the housing market endlessly wait for a crash to happen.
But crashes actually don’t necessarily help them, because when you have a big house price correction what happens is the banks lend you less money. So if you think about it, unless you actually have the cash in the bank, you’re not going to be able to buy more because the bank will lend you less because they’re saying it’s worth less, so what you end up having, effectively, is less money. So a house price crash is no good for anyone.
I’m a big believer that you want stable house prices; not going too high, not crashing down. That’s actually what they’ve had in lots of parts of Germany for many many years. We tend to have sort of boom bust economics, since about the 70’s.
I think that house prices are currently at a much more sustainable place than they were, and I think that if you see something that you love and you can get it at a good price, (And what I mean by good price is: does it relate to prices of properties that have recently gone on the market and therefore are more realistically priced to what the current market price is? Or is it priced against something that has been on the market for 3 years?) if it’s a realistically priced home, and you love it, you should buy it.
You shouldn’t stop and wait for Brexit and all these things. I actually think post Brexit, most people are coming around to the idea that actually not much is going to change. Because you’ve got to ask yourself, in London, how many people come to London, how many people leave London each year?
Banksy Mural, Wikipedia Commons
At the moment, there’s a massive net inward migration. Well, it doesn’t take a genius to work out the law of supply and demand that that’s going to put pressure on prices.
The question I suppose on everyone’s lips and in their minds is, is net inward migration going to fundamentally change hugely after Brexit? I think the answer is probably not.
Fundamentally, Europeans coming into London tend to be relatively well skilled. I think we’ve still got a huge economy in London that needs lots of labour. And while we’re at a very low employment rate I think we all know that the low employment rate is actually to do with 0 contract hours just as it is to do with actually the number of people in jobs. And someone working for a few hours a week bolsters that number.
So people will want to come to London, because it’s a thriving capital. One of the best capitals in the world. And it’s going to be popular for years and years to come.
Now, that doesn’t mean that some time in the future London might not lose its shine and lose its appeal. But that, in my mind, is more of a sort of 20 to 30 to 40 year horizon, and that will depend on what happens with Brexit.
But in terms of most people staying in their homes for the next sort of 5 to 10 years, I can’t see anything really fundamentally changing.
What are your thoughts? Let us know in the comments below!
Gus started in the property world almost 20 years’ ago when he accidentally project managed his own loft conversion in 2000 and has been in property ever since. His mission is to create better homes: better quality, better design, better value and better for the environment. He believes that self-build and custom build does exactly this. He is a frequent architectural judge and speaker. He chairs the custom build developer group for NaCSBA, sits on the national executive board and the right to build policy commission, was a contributor to the Bacon Housing Review for Government and is a member of two design review panels.