Editor’s note: Harvey Edgecombe, a London-based lawyer and creator of the Renthusiast international real estate blog, shares his views about the future of the real estate industry in this Roadmap to Recovery Q&A. Click here to learn more about the Roadmap to Recovery project.
The following is an Inman News Q&A with Renthusiast creator Harvey Edgecombe:
Q: Will sales activity in your local housing market contract or expand in 2009?
In London, we’re seeing different markets reacting differently. For example, the Land Registry Index, the FT House Price Index and the Rightmove Index all report positive growth figures for London boroughs such as Kensington, Chelsea and Westminster, areas considered prime or super-prime real estate. However, overall for London the market is decreasing, and I think this trend will certainly continue in 2009 and beyond.
I don’t see national U.K. markets expanding much in 2009. We have the general problem of the credit crunch and its full impact on the economy has yet to be felt. The government is predicting massive layoffs in 2009 and banks still are refusing to lend to each other, forcing credit markets to come to a standstill. The U.K. government stimulus packages are sending mixed signals to consumers and investors alike; on the one hand they pump money into the finance system, encouraging — almost strong-arming — banks to lend. But at the same time they plan tax increases on an already overburdened economy, which doesn’t make sense in my opinion.
Q: Will local home prices decrease, increase or remain stable in 2009? 2010?
I don’t see much growth happening for the immediate future. There may be isolated pockets in London where house values may rise, but certainly not at the levels we have witnessed in previous years.
Q: Will national home prices fall, rise or remain flat in 2009? In 2010?
National house prices in the U.K. are falling dramatically and will continue to do so for the next couple of years. Although the rate of depreciation is perhaps not as great as the U.S. or probably Spain, it’s still quite dramatic when you consider that the U.S. and Spain had problems with oversupply in their domestic markets. Those factors, combined with subprime lending (in the U.S., not so much in Spain) caused rapid price depreciation.
Just a few years ago it was widely acknowledged that the U.K. urgently needed more housing to meet demand. Kate Barker of the Bank of England produced a report in 2004 stating that domestic demand required at least 120,000 houses built per year, and the government initiated many projects because of this. With the credit crunch, most of these projects have come to a standstill. If the government can do something quickly to jumpstart some of these projects then we may get some stimulation in the housing market as these houses ought to be built affordable for first-time buyers. Because first-time buyers are still priced out of the market, plus the withdrawal of bank lending, it’s practically impossible for any substantial activity in housing for the foreseeable future.
Harvey Edgecombe is a London-based lawyer and entrepreneur. He also acts as strategic adviser to a London-based property investment company, and currently authors Renthusiast, an international real estate blog.
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