London property bubble shows how dangerously imbalanced
is Britain's economy
Treat the cause, not just the symptoms, doctors are urged. Yet in tackling the Great British fever over our housing market we are doing precisely the opposite. The confusion is threefold. First, there isn't a housing bubble across Britain, despite what the government says. Instead, we have a London bubble – a giant one. Second, despite all the angst-ridden commentary, that bubble can't keep growing forever. The third, and most important, point is: the crisis isn't primarily about property – it's about the lopsidedness of Britain's economy. The reason homes in the capital cost so much more than they do outside is because London has the best jobs and the best economic opportunities – and therefore the longest queue of would-be residents. To cure property fever, we should focus on rebalancing Britain and redistributing or counterbalancing London's political and economic power.
The average home in London costs as much as three homes in the rest of Britain.
Photograph: Yui Mok
However much Bank of England boss Mark Carney talks of the UK's "deep" housing problems, the British property market can be split into two: London, and everywhere else. In the capital, the housing market has well and truly bounced back from the crash. Homeowners in every other part of Britain have still not made back the losses incurred when the credit crunch began seven years ago. According to the Land Registry’s figures, house prices in London are now more than 20% above where they were in August 2007; every other region is still below those levels. You see the evidence of this when a council like that in Stoke-on-Trent sells derelict homes for £1 each while two car parking spaces outside the Royal Albert Hall go for £400 000. And Adam Leaver of Manchester Business School has found that the average home in London now costs as much as three homes in the rest of Britain. Such a disparity has never been seen before.
This is the price Britain pays for treating London as a "world city", and lavishing on it all the plum infrastructure and transport links, for bailing out the City, but leaving manufacturing to wither on the vine, for putting all the big-boy jobs in the capital and draining the rest of the country of their sustainable local economies and elites. That process has gone on for decades. It will now require decades to correct because the solutions are more complex than usually suggested, for example: putting the next Tech City in Liverpool, or moving government departments out of Whitehall and up to Middlesbrough, or using the tax system and strategic lending to encourage industries to move their headquarters to all those lovely ...
Business Report, 27 May 2014