Capital versus country

London is richer than everywhere else in the country. Its per capita gross value added is 175 per cent of the UK’s, a number which illustrates just how much more wealth the capital produces for the economy than other regions.

Incomes in the capital are much higher, too, at 126 per cent of the English average and – despite more households moving out of the capital to other parts of the country than moving in – new building in London still fell short of the growth in households by about 12,000 a year over the last five years.


Article continues after advert

It is not surprising then that London’s housing market has been outperforming other parts of the country.

The price growth story is well known – prices in London are currently 15 per cent above their 2007 peak while the average for England and Wales is still 8 per cent below. Meanwhile, the average in the north is still more than 20 per cent below the 2007 peak. Transactions data tells the same story.

Even though affordability is much worse in London, house-buying activity is now just about 30 per cent off the 1997 to 2007 average level. Comparable figures for England and Wales show transactions are about 40 per cent off this long-run average, while in the north of the country the transaction level is still about 45 per cent off.

But, looking more closely at the data has revealed a much more interesting and less straightforward picture than the one of London being a special case.

Even though the average house price in England and Wales at £167,353 is still well below £250,000, the proportion of market activity in this sector has fallen from over 76 per cent at the peak of the market (when the average price was about £180,000) to 70 per cent today.

Prices and transactions have been growing across the country, driven by the most expensive market sectors.

Looking at house price growth for England and Wales as a whole, prices in the least expensive bands have grown least. Indeed prices in the least expensive bracket are still about 10 per cent lower than in 2007. Prices in the £250,000 to half a million band are up by almost 10 per cent, but those priced more than half a million are about 30 per cent higher.

Higher prices in London have introduced a little bias into the price data because prices in London have breached the half million barrier sooner.

But looking at the local London boroughs has confirmed that this is a phenomenon driven by stronger market performance in the most expensive areas rather than being a capital versus the rest of the country phenomenon. Prices in the more expensive boroughs have risen the fastest. Hackney saw a price increase of 15 per cent over the last year and it is today the seventh most expensive borough in London.

Prices in the central London market – even excluding the prime boroughs of Kensington and Chelsea and Westminster – rose by 12 per cent. In stark contrast, Newham prices increased by just 2 per cent. Newham is the second cheapest borough after its neighbour Barking and Dagenham.