Ernst and Young have entered into the ongoing housing debate, emphatically arguing that the market in London is currently displaying ìbubble likeî symptoms.
The service firm giant identified that the average house in the capital is set to exceed over £600,000 by 2018, which will be over 3 times that of a house in the North East areas of the UK.
And if this happens, a ëbubbleí will be on the horizon, as property prices would have risen to a level that are simply too high for people to afford, and could result in the eventual collapse later on down the line.
The issue of a potential ëhousing bubbleí has been debated heavily across the political and economic spectrum, with spectators from both sides voicing a broad range of opinions about the likelihood of one occurring.
In particular, the governmentís help to buy and funding for lending schemes have come under intense scrutiny, as some have perceived them to have artificially increased property prices by loosening lending regulations, which by extension has increased demand at a rate far higher than the production of supply.
In other areas of the country, data has suggested that this is far off from happening, but in the capital, where housing costs and the general cost of living are higher, the chances continue to seem more and likely.
Statistics released by the Office for National Statistics displayed that on year-by year analysis, housing prices had increased by 5.4% in the whole of the UK up until November 2013, whereas they had risen by 11.6% in London during the same period.
Think tank Civitas have attributed the steep price rises to an altogether different source than the government schemes, arguing that it is foreign investors in property that are making it so hard for young workers to enter onto the property ladder.
Civitas have argued that restrictions and regulations should be imposed onto these people in order to calm down the vastly overheated property market being witnessed at this time.
ëIncreasing cause for concerní
Civitasís research report revealed that a vicious cycle of unattainable housing costs is being created due to wealthy foreign investors utilising Londonís housing market as a form of investment. This in turn is leading to prices rising due to an artificial demand source, and means that young workers who wish to enter onto the property ladder are unable to because they simply cannot afford to part with the high percentage of their salary that purchasing a property would now entail.
They have now called for a change in the foreign investment system to be implemented, whereby investors can only purchase property if it means that they will create further housing in the capital, so that prices are not pushed up so high.
Civitas said: “London is one of the most – if not the most – attractive property markets for international investors all over the world. It is also at the centre of an affordability crisis in the UK which is having serious consequences for younger people and the less well-off.”
Civitas added that by ensuring this happens, builders scope would switch away from simply constructing high price property and would hopefully lead to a greater level of mid-range property being created in the capital.
The think tank are not the only faction to be concerned about the current complexion of the property market, with the EY Item Club calling for a change to the current system to be made as soon as possible in their latest report.
EYís senior economic advisor, Andrew Goodwin, argued: “House prices across most of the country remain well below their pre-crisis peaks and there seems little danger of a bubble developing.
“But London, which is suffering from a combination of strong demand and a lack of supply, is increasingly giving us cause for concern.”
“If multiples began to approach this level we would regard this as a sign that borrowers and lenders were throwing caution to the wind and that the market was entering bubble territory.” The average mortgage in London is already more than three times average salary.
EY argued that Londonís property market is now more investor orientated rather than functioning for residents, and cited that a recent decrease in the value of sterling as the prime reason why so many have flocked to invest in the capital.
Despite the EY and Civitasís findings, the Bank of England have dismissed the chances of a housing bubble, arguing that whilst property prices are soaring currently, that they are still far off from the levels they had reached prior to the recession.
The bank have withdrawn their money from their Funding for Lending scheme in the property market and refocused it into small business lending, in a move that is likely a response to the market ëoverheatingí.
Housing Minister has defended foreign investment in London, arguing that it actually leads to more property being built, rather than inhibiting the residents of the capital.
Mr Hopkins said: “The London housing market has received valuable support from foreign investment, unlocking development and leading to the building of homes that wouldn’t otherwise happen.
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