Detached houses close to the centre of London have seen the biggest price increases over the past year, according to research that found little sign of homeworkers quitting the UK capital for rural areas.
Government support measures — including the furlough scheme that has underpinned household incomes, and the stamp duty holiday that has fuelled transactions — helped to drive house prices to new highs towards the end of 2020.
But the boom has been uneven: across England and Wales, the median price of detached and semi-detached houses has reached new peaks, while terraced houses have made only modest gains and prices for flats and maisonettes have not regained pre-pandemic levels.
But a detailed analysis of transactions in the wider region around London, by researchers at the London School of Economics published on Tuesday, suggested that while well-off homebuyers are bidding up the price of more spacious properties, and a pre-existing trend towards larger gardens continues, there has been no big exodus of office workers liberated from a life of commuting life.
Paul Cheshire, emeritus professor of economic geography, said prices had risen most for a handful of detached houses very close to the centre of London — “likely bought by the seriously rich” — whose owners could not only work with ample space at home but could also avoid using public transport.
There were also significant price increases for detached and semi-detached houses up to 40km from the capital, Cheshire said, but little evidence of people moving farther afield in large numbers. In contrast, prices of flats fell everywhere, as did their share in the number of transactions.
However, UK house prices could be set to fall if the eventual withdrawal of government support measures coincides with rising unemployment, the researchers argued. They compared the current situation to the late 1980s, when former chancellor Nigel Lawson set a date for the expiry of a tax break, triggering a rush to transact before the deadline and a bust when it expired just as recession hit.
“We have the ingredients for something — I hope not as painful — but for something like that,” Cheshire said.
Unusually, London and the south-east could suffer a bigger housing market downturn in the short term than other regions, he added, predicting “not a levelling-up so much as a dressing-down”.
That is partly because the capital and its surrounding region have the highest concentration of expensive properties that have benefited most from the stamp duty holiday, and partly because London is most likely to suffer a loss of skilled EU citizens and a hit to its high-value services after Brexit, he argued.
However, the researchers said that the rise of hybrid working would do little to dent London’s appeal — or to make its property prices more affordable — in the long run.
“People will still want to live in cities,” said Christian Hilber, a co-author of the research, arguing that the main effect of increased homeworking would to bid up the cost of space. He added: “Without radical reform, space in housing and gardens will increasingly become the privilege of the rich — and London will remain unaffordable.”