Introduction: The Housing Market
The capital has some of the most expensive house prices in England and is a competitive market for developers. We take a look at average house prices, and factors that could be driving them.
London’s Housing Market – 2012 to 2022
Before we zoom into recent movements in the housing market, let’s zoom out and take a look back over the past decade.
London has overall seen strong growth in its house prices with the rest of the country – 73% over the past decade, close to England’s 76%.
Yet we can see differences between Outer London and Inner London. Outer London has seen stronger and more consistent growth amongst its boroughs compared to Inner London. Outer London’s growth was ten percentage points higher than Inner London’s – an 83% growth in house prices compared to Inner London’s 73%.
A breakdown of price growth amongst the boroughs shows an uneven distribution of growth in Inner London, while there’s a more even spread of growth in Outer London.
All LPAs in Outer London have seen house price growth of at least 59%, and the gap between the strongest performer (Barking & Dagenham) and the weakest (Richmond upon Thames) is 56 percentage points.
Meanwhile, in Inner London, growth is uneven. Hammersmith and Kensington saw house price growth of around 20%, which is paltry compared to Lewisham’s 92%. The percentage point gap between Hammersmith and Lewisham is 74 percentage points.
When we look at the house prices for the relatively low-growth boroughs – we can see a trend. Kingston’s average house price is a staggering £742,061, nearly a quarter of a million pounds above Outer London’s average of £499,111 in 2022. It is the priciest borough in the suburbs of London.
This is the same for Kensington – with the average house going for £1.28 million in 2022 compared to Inner London’s £624,074 – nearly double the price. Price growth could be slower as prices get out of reach for more buyers.
Yet Hammersmith deserves more investigation. In 2022, the average house went for £725,829, not much more than Inner London’s average, so on the surface houses shouldn’t be too far out of reach for the average buyer.
Hammersmith’s Local Plan is up to date, and while 41% of its non-major planning decisions have been overturned at appeal, it is still delivering homes: it delivered 106% of its 2021 Housing Delivery Targets and has built nearly double the number of new homes per 1000 people compared to London’s – 8.13 compared to 4.10.
Thus, housing delivery isn’t the issue. But wages suggest there is an affordability issue in Hammersmith. In the past decade, Hammersmith’s average earnings has gone up 8.3% compared to Inner London’s 36.5%. In 2012, it had the fourth highest earnings to house price ratio in Inner London (16.1 multiple of earnings) and has kept that position in 2022 (17.6 multiple of earnings).
Additionally, local concerns might be deterring buyers. Hammersmith Bridge has been closed to motorists since 2019, with the timeline of its repair still in question.
On the whole, Outer London has seen stronger growth than Inner London – possibly driven by both first-time buyers, and Londoners looking to upsize their homes.
But Inner London has had some clear winners in the past decade – Lewisham and Tower Hamlets both saw house price rises of 92% and 76% respectively, both above the overall price rise of 73% for London.
London’s Housing Market – 2021 to 2022
Kwasi Kwarteng's "mini-budget"
A word of caution as we talk about house prices in the last year.
A lot has changed in the past six months. Kwasi Kwarteng’s September “mini budget” caused a shock to the markets, affecting mortgage rates. This slowed down house purchases, causing the Covid driven boom in house prices to pause for the first time.
Land Registry’s House Price Index only goes up to December 2022 (as of writing). Nationwide’s House Price Index is more up-to-date, showing February’s house movements, but is only available nationally.
It shows house prices dropping from a peak of £273,800 in August 2022 to £257,400 in February 2023. It also shows a 1.1% year-on-year drop, the first annual decline since June 2020, the months of lockdown.
This is to highlight that the housing market is moving rapidly at the moment. While mortgage markets have stabilised after the mini-budget, the housing market is yet to do so. This could be because of a lagged response, or could be the market undergoing a post-Covid correction. Only time will tell.
With that said, let’s see how London performed between 2021 and 2022.
London 2021 to 2022 Housing Market
The past decade’s trends hold true for 2021 to 2022. Between December 2021 and December 2022, Outer London grew faster than Inner London – 7.7% against Inner London’s 4.3%. London as a whole’s house market grew by 6.7%.
Just like in the past decade, Inner London has more borough by borough variance in its house prices than Outer London.
Excluding Westminster and The Square Mile, the difference between the minimum and the maximum is 30 percentage points. Kensington saw its housing market contract by nearly 10%, from £1.41 million to £1.28 million. Meanwhile, Tower Hamlets continues to grow – prices rose by 20.8% from an average of £431,000 to £521,000.
Outer London has variance in its house prices (Richmond upon Thames continuing to be the outlier, as discussed in house movements in the past decade), but all boroughs saw growth in their house prices. Leaving Richmond aside, Merton grew the least at 3.8%, while Newham grew the most at 12.3%. A smaller range than Inner London’s spread at 8.5 percentage points.
Richmond, Kensington, Islington, Camden, and Hammersmith saw some of the lowest growth over the past decade, so it is unsurprising that they are seeing negative growth between 2021 and 2022.
The earnings to house price ratio for all those boroughs are above London’s 13.8 multiple of wages (and Inner London’s 15.3) – suggesting there is an affordability crunch occurring in those boroughs.
These however remain outliers compared to the rest of London – 27 of London’s 33 LPAs saw their house prices increase, with Tower Hamlets being the biggest winner in the capital.
If you've enjoyed the data insights about the housing market in London, check out our other reports for the region below:
- London: Population Changes, Density and Migration Patterns
- London: Constraints, Policies and Appeal Overturns