The quarterly London housing market report provides insights into the trends and dynamics of London's housing market. This report delves into various aspects such as house prices, rents, sales, and new supply, drawing data from publicly available datasets. Prepared by analysts at the Greater London Authority, the most recent report covers data for the spring and early summer of 2023, offering a snapshot of the current state of the London housing market. The report's analysis takes into account official data sources published on a monthly or quarterly basis, with a time lag.
Key Trends in the London Housing Market & Prices in 2023
1. Slowdown in Rental Growth
The average asking rents for new tenancies in London experienced a modest deceleration in the past year. Despite this slowdown, the rents remain exceptionally high, even in the midst of the cost of living crisis. According to Rightmove, the average asking rent for new tenancies in London reached £2,567 in Q2 2023.
Although annual rental growth in London slowed slightly to 13.7% in Q2, it has consistently exceeded 10% for seven consecutive quarters. Comparatively, the rest of Britain saw annual rental growth at 9.3%, indicating the persistence of high growth rates despite the broader cost of living challenges.
2. Persistent Demand for Rented Rooms
The demand for rented rooms in London continues to outpace the available supply. Recent data from SpareRoom.com indicates an increase in both the number of ads placed by people seeking rooms and the available room inventory. With 0.7 rooms available per searcher in late July, there's a slight improvement from the previous year's 0.6 rooms.
This growth aligns with seasonal patterns observed in 2021 and 2022, suggesting a rising demand trend. Furthermore, Zoopla data highlights a decrease in the number of one-bedroom homes available to rent below specific price benchmarks, underscoring the pressure on the rental market.
3. Decline in House Price Growth
London's housing market has experienced a sharp decline in house price growth in recent months, remaining below other regions. The ONS House Price Index reveals that the average house price from completed sales in London dropped to £525,600 in June, down from a peak of £544,500 in September 2022.
Over the last year, London prices increased by a mere 0.8%, with all regions displaying significant slowdowns in price growth. Rightmove's more recent data also indicates a decrease in the average price of London homes coming to market, reflecting a broader trend of declining prices.
4. Falling Demand and Implications
Demand for housing is diminishing in London and across England and Wales, signaling potential further declines in prices. Combining metrics of buyer inquiries and new homes listed for sale, recent trends show a considerable drop in demand alongside an increase in supply. The Bank of England's decision to raise the base rate to 5.25% in August, coupled with ongoing efforts to manage inflation rates, is likely to contribute to a weakened sales market in the short term.
5. Challenges for New Home Sales
Starts, completions, and sales of private units on large schemes in London have faced a decline in recent months. Multiple factors, including construction costs, high-interest rates, and the conclusion of the Help to Buy scheme, have impacted these figures. The conclusion of the Help to Buy scheme, which previously stimulated sales, has resulted in some housebuilders shifting their focus toward affordable housing provision. These changes, as reported by Molior, have influenced the landscape of new home sales.
6. Construction Material Price Trends
While construction material prices in the UK experienced a slight dip between May and June 2023, the stabilization of prices since spring 2022 remains apparent. The latest BEIS data indicates a 0.5% reduction in material prices used in new housing between May and June. Despite this, construction firms continue to grapple with challenges such as inflation of goods and services prices, falling demand, and taxation. A shortage of workers in the labor market is also impacting the construction industry, resulting in adjustments in working hours and business operations.
7. Slower Pace of New Housebuilding
New housebuilding in London is proceeding at a slower pace compared to the past two years. Data from DLUHC reflects a decrease in the number of Energy Performance Certificates (EPCs) recorded weekly in London, indicating fewer completions. The July CIPS UK construction PMI reported a decline in housebuilding activity across the country. High borrowing costs continue to be a primary constraint on the demand for new homes, contributing to the overall decline in housing investment.
Overall, this London housing market report for August 2023 paints a picture of an evolving landscape. While average asking rents remain high despite a slight growth slowdown, the demand for rented rooms is robust, with indications of an imminent increase. House price growth has significantly declined, and a decrease in demand suggests the potential for further price drops. Falling demand and challenges in new home sales are evident, accompanied by fluctuations in construction material prices. Overall, the London housing market faces various factors that influence supply, demand, and pricing dynamics, shaping the path ahead for the city's housing sector.
Sources:
- https://data.london.gov.uk/housing/housing-market-report/
