House prices in the UK rose by a pedestrian 3.5% year-over-year in November, according to the latest data—that is, if you exclude London from the calculation. Residential property prices in London rose by 11.6%, which is down from 12% the previous month but still frothy by any definition. Including London, British house prices were up by 5.4% in November.
For some time, property prices in London have disconnected from the UK as a whole; London homes are both the most expensive and fastest appreciating in the country. The average London house is now worth £441,000 ($724,000), versus the £248,000 national average.
New research provides evidence of what many Londoners have long suspected; property prices in London are only partly linked to the local economy. Academics at Oxford’s Saïd Business School looked at transaction-level data since 1996 and cross-referenced spikes in prices to economic and political turmoil abroad. Thus, they hoped to test the “safe haven” appeal of London property to foreign buyers looking for a stable place to stash their cash. The researchers’ statistical tests passed muster: “Our empirical results document that increases in political uncertainty in Southern Europe, China, Russia, and the Middle East are associated with well-identified increases in London house prices in specific wards,” they conclude.
Interestingly, they find that the dynamics of London’s safe-haven status are not uniform across foreign buyers. Turmoil in China, Russia, and the Middle East is strongly correlated with price rises in well-to-do London neighborhoods, while upheaval in Southern Europe and South Asia is more closely linked with price hikes in lower-income wards with a large share of residents from those regions. The academics suggest that this could show that buyers from, say, Egypt are more interested in simply protecting their capital by investing in prime property in Mayfair, while Pakistanis buying in Southall are more likely to live in the homes they buy amidst pockets of their fellow countrymen.
Whatever the case, it is increasingly clear that London property prices are not representative of the UK, and vice versa. And that’s why when each new batch of price data is released, it is probably wise to discuss the trends for Brits and Londoners separately.