Figures just released by the UK Land Registry show that house prices went up 5.6% annually across the country in the 12 months to March, which is the fastest increase in four years. Not only is this one of the strongest indicators of the recovery of the UK economy but it also points to two exciting investment opportunities: purchase of existing housing and investment in construction of new housing.
The boom in house prices is being felt particularly in London. In the past year prices in the capital as a whole rose by 12.4%, and even in some areas not considered particularly fashionable, such as Brent in North West London, the rise was 30%. The average house in London now costs £414,490. In the country as a whole, the average is around £223,000.
This means, as the study indicates, that property prices increased by a massive 4,268% over the past 40 years. To put this in context, if food and wages had increased at the same rate, a weekly shop would be nearly ten times higher than the current average of £56, and earnings more than double the current average of £26,500.
So even if house prices tend to dip during a period of recession – such as happened in the early 1990’s or after 2008 – a positive return on housing, especially in London, is certainly guaranteed for the longer-term investor.
The rise in house prices has seen a shift in trends among the population. Even 20 years ago it was the norm for children who left home to go to university to set up their own homes once they left college and started a job. Now, a quarter of those between the ages of 20 and 34 are either still living with their parents, or have returned to the family home after going away to study. They have earned the nickname of “the boomerang generation”: having gone away, they’ve come back again.
This is a development which is not greatly welcomed by the younger generation or by their parents. One way to halt this is for the government to encourage more house-building, especially by giving local authorities increased powers to build new homes. Such a scheme is already under discussion, with local authorities being tasked to find “New Home Zones” in their jurisdictions. Councils will be encouraged to seek private finance to make such projects a reality.
An added incentive for this to be done has been highlighted in a report on the situation from the consultancy firm KPMG and the housing charity, Shelter. The report suggests that if there is not sufficient development of New Home Zones, within the next ten years house prices will have doubled from their current level; and in 20 years’ time we could be looking at an average house price in the UK of around £1m.
An Englishman’s home has traditionally been considered as “his castle”. It may not have towers and battlements, but there is an excellent opportunity being presented for investors to play a part in building new English “castles”.
