Depressing million-dollar London homes

Discuss

41 Responses to “Depressing million-dollar London homes”

  1. Ugly Canuck says:

    Million dollar homes?
    Pfffftt!

    The future is in…BILLION dollar homes! See here:

    http://www.guardian.co.uk/world/2010/oct/13/mukesh-ambani-india-home-mumbai

    It seems the Mumbai, India real estate scene is doing OK, eh?

  2. Anonymous says:

    My sister and her husband recently paid a fortune for a relatively modest place in the North of England. Things aren’t quite as bad up here as they are down South but property prices all over Britain are hitting ridiculous prices.

    Prices have risen all across the board and often the worst affected are the people trying to get onto the property ladder in the first place and it doesn’t look like things will slow down anytime soon.

    I suppose the silver lining to the cloud is a lot of people in Britain would be happy to live even in a small cottage as long as it had a bookshelf and a fireplace. Average person won’t be buying a mansion anytime soon but we are generally quite happy with any place we can call home.

  3. jfrancis says:

    Try this in Mumbai, where I am visiting now. There is some very expensive real estate here, and some of it is extremely depressing looking.

  4. Nadreck says:

    I’m baffled as to why people think that buying your dwelling can be some sort of investment. If housing prices go up faster than wages what is it that people will use to buy these ultra-overvalued houses? Pirate gold? Any increase over the average wage increase is a bubble.

    As things stand now having a mortgage on your house is just renting only at a higher price and without the mobility that comes with renting.

    • Moriarty says:

      “Any increase over the average wage increase is a bubble.”

      Although there are obviously bubbles, this is not true. The supply of real estate is basically constant, but the demand is going to grow as population does. What will they pay for it with? A greater proportion of their lifetime income. Or: they won’t, and ownership will be restricted to a narrower portion of the wealthy.

      • Nadreck says:

        You actually seem to be agreeing with me?! The “demand” for something is irrelevant; it’s the number of people actually in the market. For example there is a great “demand” for dates with Uma Thurman but few are actually competing in that particular marketplace. The increase in population (leaving aside the question of whether or not that’s a population bubble) is irrelevant as it doesn’t constitute an increase in the bidding side of the market. It’s the increase or decrease in the number of people able to afford a house at current prices that matters. Due to the forces that you yourself outline, that number is steadily decreasing: especially in the areas that I’m talking about – the West in general and the US in particular.

        Even beyond that, who says the population is getting bigger in the “hottest” housing markets anyway? A lot of the nominally capitalist countries have zero or negative population growth. Especially in the portion of the population able to afford the payments on a tar-paper shack.

    • Anonymous says:

      “As things stand now having a mortgage on your house is just renting only at a higher price and without the mobility that comes with renting.”

      Except that aside from the deposit, monthly mortgage prices are far lower than monthly rent costs (otherwise whoever owns the house you’re renting would be out of pocket … it’s simple logic), and you’re not just putting money in the bin, you’re actually buying something, just on finance.

      In the same way as I could buy a TV, or I could rent one. Except a house ‘probably’ won’t lose value and a TV will likely be worth nothing in a couple years. Yet I don’t see people rushing out to rent TV’s … even though you can.

      • chgoliz says:

        You’re forgetting all the other costs of ownership:

        - points, closing costs, etc.;
        - real estate taxes;
        - higher insurance;
        - 100% responsibility for all upkeep and repair;
        - loss of the use of significant capital (the down payment) for other more liquid investments.

        Yes, landlords make money because their costs are lower; this does not automatically mean that you could buy a home in the same building/block/neighborhood for the same outlay. They may have purchased 20 years ago, or had more cash on hand and thus were able to get a cheaper mortgage, or inherited the property, or used sweat equity or on-call tradesmen to renovate economically.

      • adamnvillani says:

        monthly mortgage prices are far lower than monthly rent costs (otherwise whoever owns the house you’re renting would be out of pocket … it’s simple logic),

        Unfortunately for armchair economic analysts, the housing market in reality doesn’t fit neatly into a simplified mathematical model.

        Where I live (the San Fernando Valley of Los Angeles) we rent a pretty nice apartment. If we were to buy a house at a similar affordability level, we’d have to put up with a major drop in housing quality. The rental market was a lot quicker to adapt to the falling housing demand than the ownership market here.

  5. Anonymous says:

    shrugs depend where you are…. some mortgages are cheaper than renting.

  6. tw15 says:

    The parent may celebrate the price rises as a retirement nest egg, but the child will find themselves priced out of ever owning a property.

    > If housing prices go up faster than wages what is it that people will use to buy these ultra-overvalued houses? Pirate gold? Any increase over the average wage increase is a bubble.

    They will use credit. The prices are affected by how much cheap credit is around, who can get access to the credit, how long they can spread the debt, and if inflation will make the debt worth less.

    The Financial Services Authority (FSA) wants to force lenders to be much more careful about to whom they lend and the Council of Mortgage Lenders is lobbying against this – to restrict mortgage lending would “sacrifice” many good borrowers. See http://www.bbc.co.uk/news/business-11468240

  7. tw15 says:

    I should have added I agree house prices in the UK are insane and the FSA’s credit plans make sense.

  8. acb says:

    The problem is that it’s in London, a city that’s a status symbol. Everyone who’s anyone in the world above a certain stratum, from Hollywood celebrities to Russian oligarchs to Saudi princelings has to have a place in London, which pushes prices up. (I saw, a few years ago, an article by an upper-class Londoner complaining that, being merely ordinarily wealthy, he was now locked out of living in areas he grew up in, which are now entirely the preserve of the global super-rich.) That trickles down, with the regular rich moving into (and raising the prices of) formerly professional suburbs, professionals moving into overpriced workers’ cottages near convenient tube stations (organic groceries undoubtedly follow suit), and so on.

  9. Anonymous says:

    The reason London is so expensive is because it is the most central city in the world – London has always been the favourite city for wealthy foreigners to live and enjoy the wealth of culture and so many things to do. London may have its bad points but in the end there is no other city like it – and it offers a very open minded sophisticated and cultured environment. When all other countries are losing money – UK still grows and wealth from all over the world pours into London… making real estate in this city very overpriced – however compared to NYC and San Francisco I still think London is better value for money. USA is a new country – UK is an old and established country – preserving and growing wealth in the US will be very difficult especially now – but in Europe wealth has always existed and will continue to grow. There is a reason why kings and queens and aristocrats all own homes in London – but not in NY or Chicago.. or other major world cities because they all feel safe with their money in London.

  10. guernican says:

    As the article mentions, there is a certain cultual attachment to home-ownership in the UK. But that is the first time I’ve heard of someone extolling the virtues of renting because it “keeps you mobile”. You really can’t see the benefit of, y’know, having something to show for all that money you’ve paid out?

    • Nadreck says:

      You really can’t see the benefit of, y’know, having something to show for all that money you’ve paid out?

      Well, I could except that that’s not what’s happening. In the areas that I’m talking about, the West and specifically the US, people aren’t accumulating any equity and about a third have negative equity: the result of no-money-down and a burst price bubble. For most of the people with negative equity prices would have to go up by 25% for their loan to be equal to the price of the house. I don’t see an increase in the number of people able to afford a house, even on credit, going up by 25% any time soon.

      I forget what the exact figure is but the rule of thumb is that if the price of the house is more than about 4 times your annual gross salary you’re never going to own it.

  11. barnaby_s says:

    For depressing try working out the average house price vs average wage, here in Oxford (UK) it is 15.4 times average wage to average house price!!
    see:
    http://www.oxfordmail.co.uk/business/news/4736637.Disappearing_dream/

  12. Nadreck says:

    Hmmm, my recitation of the Cold Equations seems to have garnered quite a response. Let’s see what we can do to hurry that adorable tyke out of the airlock! But how,exactly, to respond? In one giant post or a bunch of little replies? I babble on too long on this forum anyway….

    How about a longer response to Anon, always the most severe critic, and then a few individual responses. For the detailed statistical analysis see the incomparable and ever accurate Dr. Housing Bubble.

    monthly mortgage prices are far lower than monthly rent costs (otherwise whoever owns the house you’re renting would be out of pocket … it’s simple logic),

    But not reality. Plenty of suckers who bought “income properties” are renting them out at a loss just so they can have some money coming in as opposed to nothing. Rental costs for apartment buildings, especially in the many jurisdictions where there is some rent control, have stayed pretty flat or gone down. THe total cost of attempting to own a home has gone up! UP! and away!

    a house ‘probably’ won’t lose value

    Thus speaks someone who hasn’t read a newspaper in 4 years; or in Japan for 15. Not counting people living in foreclosed properties while idjits try and figure out who actually owns the dump, about 29% of the mortgages in the US are underwater: negative equity – worse than the equity situation of the renter. The other 71% is barely doing better than that.

    a TV will likely be worth nothing in a couple years. Yet I don’t see people rushing out to rent TV’s

    The more fool them. If you rented out your TV and sent it back to the store for a new one every two years or so you’d now have a 3D-HD TV for the same outlay that your neighbour paid on his credit cards to own a CRT TV. This is why most companies lease their computer equipment. Also why I get such equipment 3 or 4 years later at 20% of the original cost when it goes “off-lease”.

  13. Kaden says:

    Loooooxury! Vancouver puts London to shame:

    http://www.crackshackormansion.com/

    Go Canada!

    • Nadreck says:

      That’s hilarious!! I’ve lived next to a crack house but even I only got about a 70% “Mansion or Crack Shack?” score.

  14. Anonymous says:

    London housing prices, from what I can tell, are well inflated and almost arbitrarily so. There’s nothing inherent to the properties or locations that justifies the costs. I have no idea why people think these properties are investments at all.

  15. Kyle Edwards says:

    Just to pick up on guernican’s point in comment #7 … Yes, I can see the benefit of “having something to show for all the money I’ve paid out”.

    But at the same time, surely you can see that there are certainly many benefits of “keeping mobile”? e.g.

    – earning more money by being able to work anywhere in the world, not just in acceptable commuting distance of where you bought a house.

    – not falling into a mental rut by living in the same old place for too long

    – avoiding costly and difficult renovation or disputes with neighbours

    – never being trapped in negative equity

    Even if you value owning the property in which you live above these benefits, it’s certainly not the case that everyone who rents is doing so because they like throwing money away.

  16. Anonymous says:

    Giving examples from the US or Canada ignores the very different reality in the UK. Case in point: people have mentioned land taxes as a cost of homeownership. But the UK doesn’t have land taxes, it has council tax, which is charged on households based on the value of their property whether they own it or not. The UK’s laws are also very much biased in favour of landlords. Many landlords will simply take the deposit at the end of their tenant’s tenure, leaving them £1000 out of pocket with little way of challenging the sting. So tenants often end up paying for general maintenance on property that someone else owns. Being a landlord is such a sweet deal in the UK that there has been an explosion of ‘buy-to-let’, amateurs with spare capital buying up second, third and fourth homes to rent to those lower down the ladder. These aren’t experts in property management or maintenance, just well off people earning rents on their capital.

    Given that mortgage payments on equivalent property are often very similar to rentals costs in the UK, it’s generally economically irrational to rent unless you can’t avoid it in the UK. Even if house prices were stable, you would still be building up equity. In reality house prices have risen so fast that even a major drop in their value would leave them at mid-1990s prices.

  17. Hairhead says:

    People buy in part because of the culturally-approved and multiply-reinforced message that you’re not really an adult until you buy a “home”(ie. includes houses & condos) and have a 30-40 year financial millstone around your neck.

    I’ve never had a mortgage and I’m not sorry. My credit rating is shit because . . . . I’ve never been in debt.

    The “developers” have literally taken over city government, including the inspection mechanisms, and the quality of both new homes and new condos is, in fact, criminal, or would be, if the laws were enforced (more on that later). As an employment counsellor, I’ve helped a lot of mature tradespeople (carpentry, stonemasonry, stucco, roofing, etc.) transition to other trades, as they are driven out by ignorant and illiterate and unskilled immigrants making $9/hour; all of them, bar none, say that I should NEVER, REPEAT NEVER, purchase any building less than 35 years old. (This is in the Vancouver area.)

    • Antinous / Moderator says:

      As an employment counsellor

      ignorant and illiterate and unskilled immigrants

      Nice. Maybe you should consider a new line of work.

  18. gorilla says:

    The supply of real estate is very non-constant. Building homes is one of the biggest businesses around.

    According to This story by the BBC, there is a need of 39,000 new homes per year to keep up with increased population and in 2001 there was 175,000 new homes built.

    • Moriarty says:

      But the supply of land to put them on is constant, and the supply of homes in a particular urban location is largely constant, unless you’re tearing down small buildings and putting up big ones. Aren’t most of those new homes sprawl?

      • Nadreck says:

        unless you’re tearing down small buildings and putting up big ones.

        Which is exactly what people are doing. Here in Toronto about 30,000 finished condo units a year are being added to the market while the city’s population is about even or, in some areas, going down. Everywhere you look there’s a 40 story condo going up where, at best, a 4 story building used to be. A lot of the reason for the downturn in population is that the city is turning into a place where there is only condos: no jobs outside of condo construction, no retail, no cultural or entertainment areas – just 40 story condos some of which are popsicle-sticks-and-crazy-glue construction. Who wants to live in a dump like that? Eg:

        - Nothing has been done about transit. In the mountain range of condos at Sheppard & Yonge there’s an average 20 minute commute to get out of your underground parking and get to the end of the laneway to the actual street. The commute down the highway from the countryside to downtown is faster.

        - We’re running out of grocery stores and the existing ones are getting dangerously overcrowded. For example, back at Sheppard & Yonge the main grocery store for about a mile was just torn down for a 40 story condo,

        - Increasingly the view from your balcony is of the balcony kissing yours from the building next door. At Yonge & Bay the Manulife building commanded top rents for location and it’s great views. Now half the views are of the identical tower about 10 yards to the north. These people’s apartments will never see the sun again. There are entire rows of mature trees dying on Queen West because no sunlight ever reaches them now.

        • Dan Mac says:

          Interesting, Toronto seems to be following some of the Vancouver experiment, with the Vancouver downtown core quickly turning into a resort city of condo’s, hair salons, and coffee shops with pockets of restaurants thrown in for diversity. Supermarkets are being built into the framework however, with upscale pricing (roughly a 15% premium for all your foodstuffs) for the now captive population. The new skytrain line into Richmond links directly to Yaletown, thus, you have have armies of earnest hipsters jamming the line on Saturday to buy their cheap groceries at the Superstore on No. 3 Road.
          Vancouver is crunching Toronto a little more on audacity by converting a lot of their light industrial land to condos as well, thus driving a ton of jobs out into the suburbs, as the land is quickly gobbled up by developers. Vancouver is also reducing the share of taxes from businesses to homeowners, in order to generate more revenue from all the new condos.
          Pretty amazing that the 2nd largest country on the planet is going for some of the highest urban density as well.

  19. turn_self_off says:

    Why am i apparently the only one that finds it interesting that Cory will be right next to a hackspace from now on?

  20. Hairhead says:

    What is the real cost of a house purchase?

    Purchase price +
    taxes +
    closing fees +
    foregone interest income from down payment +
    local yearly land taxes +
    mortgage insurance +
    house (building & contents) insurance +
    cost of general maintenance +
    cost of special maintenance (replace roof, replace furnace, water heater, foundation repair, house painting, etc.)

    = Okay, is this more or less than your monthly rent. Be realistic now.

    Look, the bubble has lost only a bit of its gas — the real “pop” hasn’t come yet, and won’t come until the banks and financial institutions have to “mark to market”, that is, tot up their actual losses.

    I live in Vancouver, and I just had to move because the 50-foot lot I was renting was worth 1.2 million CDN and the owner is ripping down the place for a new house.

    • Tzctboin says:

      > What is the real cost of a house purchase?

      > Purchase price +

      Spread over 20 or 25 years, monthly payments are 30%-40% lower than paying rent (I am talking London only, people fail to appreciate the nature of the housing market here).

      > taxes +

      You have to be specific here, there are many taxes associated with owning a property, in the UK several of those are paid irrespective of you being a Landlord or a tenant (council tax for example).

      > closing fees +

      One off, if you shop around these are negligible

      > foregone interest income from down payment +

      And where does all the interest you would have earned from your rental payments go ?

      > local yearly land taxes +

      Not in the UK.

      > mortgage insurance +

      Nobody takes mortgage insurance in the UK. The security is the house itself. If you can’t pay the bank gets to auction the house.

      > house (building & contents) insurance +

      Only building insurance is extra, tennants have to pay contents insurance as well.

      > cost of general maintenance +
      > cost of special maintenance (replace roof, replace furnace, water heater, foundation repair, house painting, etc.)

      This is fair enough, but most Landlord will have insurance against one off costly repairs. If you are a tennant the landlor would calculate how much he needs for maintenance and pass the cost to you in your monthly rent.

      > = Okay, is this more or less than your monthly rent. Be realistic now.

      Owning is slightly cheaper in London (which is why so many people do it). People out of this town just don’t get it. They also don’t understand that renting is a PITA because many Landlords are complete morons not allowing you to hang a picture in the wall or to have pets.

      People fed up with unreasonable landlords gladly put up with ownership (and if you stay long term in the same place the vagueries of the market are not of your concern as long as you can afford your mortgage payments, and guess what, at around your retirement age you have a roof over your head, almost for free, when you most need it. Try that with rental)

      >Look, the bubble has lost only a bit of its gas — the
      > real “pop” hasn’t come yet, and won’t come until the banks
      >and financial institutions have to “mark to market”, that is,
      >tot up their actual losses.

      > I live in Vancouver, and I just had to move because the 50-
      > foot lot I was renting was worth 1.2 million CDN and the owner
      > is ripping down the place for a new house.

      Vancouver is not London!

      You don’t have every starlett, sheik, Russian oligarch and other varied moneyed people trying to settle in your town.

      And London does not have much space left to build, the previous government was considering to allow building in the Thames flood risk area. That is how desperate the situation is for housing.

  21. imag says:

    What is this quarter billion dollar apartment they mention?

  22. imipak says:

    @Anon, #1: “property prices all over Britain are hitting ridiculous prices” ? Actually, prices are below the pre-crash peak in 2007, and are falling once again. Some charts & data:
    http://www.housepricecrash.co.uk/graphs-index.php

    “UK house prices fell 3.6% in September, Halifax says”:
    http://www.bbc.co.uk/news/business-11491015

    Interest rates are at historical lows, ie., the only way for them to go is up. And the looming cuts (10 days to go!) are going to have a huge effect as redundant public sector workers end up having to take whatever the market will give ‘em.

    I’ve been waiting for the bubble to burst before thinking about buying a house since the late 90s. I don’t think it’s happened yet; it needs at least a 40% drop from the 2008 peak, and possibly a 60% drop. These is very bad news for the people stuck in very expensive mortgages in houses not worth what they paid for them, of course, and people who just assumed property prices could only ever rise.

  23. Graham Anderson says:

    One reason that owning your own home is popular in the UK is that renting a place can be so horrible.

    In the UK, almost all tenancies are assured short-hold tenancies. This means you have no security of tenure and more often than not you will be made to move out of your flat every twelve months or agree to a rent hike. A friend of mine renting an apartment in a brand new building and in his first week was served notice to quit 11 3/4 months hence – they wanted to make sure they didn’t miss their legal window of opportunity to terminate after 12 months.

    The stipulations in your lease will mean that you cannot smoke, put up pictures or have pets. Certainly no redecoration. And if its a furnished flat, you’d better like the furniture or be prepared to put the landlord’s in storage at your own cost while you’re there.

    Your landlord has no incentive to properly insulate your property or choose cost effective heating & hot water systems, so you are likely to be paying high energy bills due to leaky single glazing, poor insulation and cheap-to-install-expensive-to-run electric heating systems.

    Your landlord will be unresponsive if something goes wrong, but expect you to be the one who takes a day off work and wait in for tradesmen to fix the problem. Who generally makes a very bad job of it.

    At the end of your lease, its very likely that you will then be locked in a battle over real or imagined damages to the property as the landlord tries to claw back as much of the security deposit as possible.

    If you own your home, you can do what you like to the inside. If something goes wrong, you’re in control of getting it fixed. If your energy bills are too high, you can change the heating system or upgrade the insulation. Your home, your responsibility.

    • Anonymous says:

      Owning your own home vs. renting.

      Both suck. I hated renting, and I hate owning.

      My landlords were aholes who raised the rent, didn’t allow pets, were slow to get repairs done. One landlord I had fancied himself a “handyman”… I remember we needed a new lock on the door. He installed it so that you needed a key to get out of the house from the inside. If you were outside (like, say a robber) you would simply flip the latch to let yourself inside.

      Now that I own, I’m responsible for this rotting mess of a crap house. The “tradesmen” are dishonest/incompetent or a combination of both. It’s a money pit.

      What’s left? A van down by the river? A shady spot under a bridge. Maybe a semi-private room in the local looney bin. That last option sounds the most likely.

  24. otterson says:

    Cory,

    Make sure you have a smoke detector in that office! I’m just sayin’. Neighbor to a hackerspace is probably perfectly safe, however, I’ve had a couple accidents in my lab that have encouraged me to install a fire extinguisher in there. You never know what is going to happen.

    • Symbiote says:

      @otterson:
      It would almost certainly be illegal for there not to be a fire detection system and fire extinguishers in Cory’s new office. See here.

  25. Hairhead says:

    I’ve worked with immigrants for twenty years, from housewives and farmers to doctors and lawyers. The construction trades *specialize* in exploiting the illiterate and unskilled immigrants. I participated in one civil case where Hondurans were brought to Vancouver to build our new Canada Line subway, were promised good wages, and were instead paid like peons and were required to pay their own living expenses in Canadian/Vancouver prices. A Vancouver lawyer found out about this and represented them.

    The reference I made to immigrants was not a comment on immigrants in general, it was a comment on the specific kind of immigrants who are exploited by the construction industry here. These immigrants are paid crap wages and work in dangerous conditions, and the employers count on their illiteracy and ignorance of work rules here so they don’t read the legislated minimum conditions for pay, working hours, notice, training, etc.

    One of the things I do as an employment counsellor is to inform these people of their legal rights and to help them move to better employment.

Leave a Reply