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I don't think there will be an epic crash in London any time soon, if ever. There is no excess supply, no overbuilding. It's completely unlike the Spanish or Ir

I don't think there will be an epic crash in London any time soon, if ever. There is no excess supply, no overbuilding. It's completely unlike the Spanish or Irish property market in that regard. London property prices will decline if and when London loses its role as an important financial center. Maybe if the UK leaves the EU, Singapore's gravitational pull increases, or some important regulatory changes take place.

twic 13y ago
I'm not sure that a decline in the financial industry would have that effect. I don't think such a decline would have any effect on the supply side; it won't suddenly create more houses, or release more houses from ownership to rental. What effect would it have on the demand side? Well, people in the financial industry who could move to Singapore or Zurich or whatever might well do that, and so stop wanting to rent houses. But there are vanishingly few such people - you're talking about the elite. Their loss (if we call it a loss) wouldn't have much impact on demand. The kinds of stupendous penthouses and townhouses they rent mean they're not even competing in the same market as the normal middle-class mugs. The majority of people in the financial industry - from bank apparatchiks down to post-room clerks - aren't about to up sticks and migrate to a tax haven. If their jobs go away, they will be looking for other jobs in London. Even if they decide to give up and go and become shepherds in the Dales or something, how many of them are there? Finance is big in London, but it's far from being a dominant employer. There are huge numbers of people working in all the other sectors of a post-industrial economy too - law, media, IT, corporate head offices of all sorts, academia, healthcare, culture, not to mention all those civil service jobs. If we accept the (forecast) 2013 numbers in http://www.london.gov.uk/sites/default/files/wp51.pdf http://www.london.gov.uk/sites/default/files/wp51.pdf then finance employs 357 000 people, out of a total of 4 859 000 - 7.3%. Significant, but not enough that anything short of a collapse of the industry will have a significant effect.
- fauigerzigerk 13y ago
  I think you grossly underestimate the importance of the financial sector for London's economy. I've been watching the IT jobs market there for a long time. My estimate is that at least half of all IT jobs are directly or indirectly related to finance. I'm sure it's even more extreme in legal and some professional services. Property prices do not simply depend on the number of people looking to buy. They are also determined by how much people are willing and able to pay. If you strip out the inflated salaries they pay in finance, it's going to trickle down to all other salaries and prices. The financial sector employs large numbers of foreigners. If they leave, demand gets crushed. Also, let's not forget that London property isn't just bought to live in. It's also an investment for rich people from all around the world. If finance moves on, these investors will follow suit.
  - twic 13y ago
    It'd be useful to get some hard numbers on how many jobs in the other industries are dependent on finance. And, conversely, how many jobs in finance are sustained by the other industries, rather than simply being part of the edifice of international capital. FWIW, my estimate would be that less than half of tech jobs in London are in finance, but without hard numbers, we're just making things up, really. I'm not sure about trickle-down effects. These highly-paid finance people are not competing for the two-bedroom flats in Seven Sisters that i and other more ordinary middle-class people are after, are they? They're looking rather further upmarket. So, their demand drives a high prices of nice flats in Greenwich or townhouses in Chelsea or whatever. If that demand goes away, prices of those will fall. Then, some people who are currently looking at flats in Seven Sisters may switch to looking at these cheaper houses in Chelsea (choosing a barely affordable place somewhere nice, rather than a cheap place somewhere not so nice). That will reduce demand in Seven Sisters, and should let prices fall. But the degree of fall isn't related to the prices that the finance people were paying in Chelsea, it's just a function of the number of people who shift their attention out of Seven Sisters. I would expect the effect on prices in Seven Sisters to be muted. As opposed to, say, a collapse in the publishing industry, or the government getting serious about moving the civil service to the frozen Northern wastes, which would directly reduce demand in the middle of the market. The point about international investors doesn't make any sense to me. People don't invest in the London property market because this is where the financial industry is, they invest because it's a safe investment with a good return. The only connection to the financial industry is indirectly, via demand. And since my belief is that a substantial decline in the financial industry would not reduce demand very much, i also believe that such a decline would not cause a flight of investors.

twic 13y ago

I'm not sure that a decline in the financial industry would have that effect. I don't think such a decline would have any effect on the supply side; it won't suddenly create more houses, or release more houses from ownership to rental. What effect would it have on the demand side? Well, people in the financial industry who could move to Singapore or Zurich or whatever might well do that, and so stop wanting to rent houses. But there are vanishingly few such people - you're talking about the elite. Their loss (if we call it a loss) wouldn't have much impact on demand. The kinds of stupendous penthouses and townhouses they rent mean they're not even competing in the same market as the normal middle-class mugs. The majority of people in the financial industry - from bank apparatchiks down to post-room clerks - aren't about to up sticks and migrate to a tax haven. If their jobs go away, they will be looking for other jobs in London. Even if they decide to give up and go and become shepherds in the Dales or something, how many of them are there? Finance is big in London, but it's far from being a dominant employer. There are huge numbers of people working in all the other sectors of a post-industrial economy too - law, media, IT, corporate head offices of all sorts, academia, healthcare, culture, not to mention all those civil service jobs. If we accept the (forecast) 2013 numbers in http://www.london.gov.uk/sites/default/files/wp51.pdf http://www.london.gov.uk/sites/default/files/wp51.pdf then finance employs 357 000 people, out of a total of 4 859 000 - 7.3%. Significant, but not enough that anything short of a collapse of the industry will have a significant effect.

fauigerzigerk 13y ago
I think you grossly underestimate the importance of the financial sector for London's economy. I've been watching the IT jobs market there for a long time. My estimate is that at least half of all IT jobs are directly or indirectly related to finance. I'm sure it's even more extreme in legal and some professional services. Property prices do not simply depend on the number of people looking to buy. They are also determined by how much people are willing and able to pay. If you strip out the inflated salaries they pay in finance, it's going to trickle down to all other salaries and prices. The financial sector employs large numbers of foreigners. If they leave, demand gets crushed. Also, let's not forget that London property isn't just bought to live in. It's also an investment for rich people from all around the world. If finance moves on, these investors will follow suit.
- twic 13y ago
  It'd be useful to get some hard numbers on how many jobs in the other industries are dependent on finance. And, conversely, how many jobs in finance are sustained by the other industries, rather than simply being part of the edifice of international capital. FWIW, my estimate would be that less than half of tech jobs in London are in finance, but without hard numbers, we're just making things up, really. I'm not sure about trickle-down effects. These highly-paid finance people are not competing for the two-bedroom flats in Seven Sisters that i and other more ordinary middle-class people are after, are they? They're looking rather further upmarket. So, their demand drives a high prices of nice flats in Greenwich or townhouses in Chelsea or whatever. If that demand goes away, prices of those will fall. Then, some people who are currently looking at flats in Seven Sisters may switch to looking at these cheaper houses in Chelsea (choosing a barely affordable place somewhere nice, rather than a cheap place somewhere not so nice). That will reduce demand in Seven Sisters, and should let prices fall. But the degree of fall isn't related to the prices that the finance people were paying in Chelsea, it's just a function of the number of people who shift their attention out of Seven Sisters. I would expect the effect on prices in Seven Sisters to be muted. As opposed to, say, a collapse in the publishing industry, or the government getting serious about moving the civil service to the frozen Northern wastes, which would directly reduce demand in the middle of the market. The point about international investors doesn't make any sense to me. People don't invest in the London property market because this is where the financial industry is, they invest because it's a safe investment with a good return. The only connection to the financial industry is indirectly, via demand. And since my belief is that a substantial decline in the financial industry would not reduce demand very much, i also believe that such a decline would not cause a flight of investors.