'There went out a decree from Rachel Reeves that all businesses should be taxed to fix the NHS. “Tell me about it,” thought Joseph as his wife gave birth in a stable because there was no room for them in the maternity wing. Nearby, there were shepherds keeping watch over their flock by night because they couldn't rely on the police. And lo, a spokesman for the government came upon them, saying: "Fear not, for we are here to fix the foundations.” And they were sore afraid.’ Gordon Lethbridge adapting Luke 2
The Labour government have been in power for a year now and it’s safe to say the effect on the property market has not been entirely positive. Having said that, no one should have been expecting a shot in the arm: Labour is about higher taxes and increased regulation; it’s what it does. The problem is that for any parties of the left to be effective, a full treasury is something of a necessity - but Labour, as the Chancellor is fond of reminding us, inherited a can of worms. It’s an invidious position for any government. As Hugo Rifkind commented in The Times ‘What every prime minister wants, fundamentally, is to be tasked with divvying up the proceeds of growth. All recent incumbents, though, have instead had to allocate the costs of decline.’
So we have had the taxes and the regulation: Inheritance Tax imposed on farms and family businesses; Increased Stamp Duty and Council Tax on second homes; Non-Doms’ worldwide assets pulled into an inheritance tax net; National Insurance increased for businesses; Landlords facing yet more legislation in the tenants’ favour. All of this accompanied by the call for growth at all costs as the answer to indebtedness and national decline. You don’t have to be Einstein to see the contradictions here.
Non-Doms are right in the middle of our market and many have left for places that are going to leave their worldwide assets intact when the grim reaper calls. How many is subject to debate, but it is safe to say that it’s a lot - and includes many more who would have brought their capital, expertise and spending here who have made the tough, tough choice of going to Italy instead. We are seeing this in Central London. In Chester Square, for instance, there are more than twenty houses on the market (most of them at least 30% overvalued). Montpelier Square, with Harrods as the local grocer, has nine houses on the open market and at least another three who could be persuaded. The lowest price per square foot amongst them is £1630: there are houses in Wandsworth and Fulham that are getting this. Which says something about the desirability of tall, skinny houses but also something about the two-tier market that is developing where the ‘international’ market of central London is, at best, treading water and the areas further out - essentially ‘domestic’ - trading quite strongly. As ever, the general hides the particular. The best continues to surprise on the upside: if a good lateral house in Notting Hill comes on, there is, inevitably, more than one buyer. Good smaller flats are the same.
Stamp Duty - a tax on mobility and, by extension, growth - has been increased on second homes with a predictable chilling effect. Add to that council tax increases and there are decorators, builders, lamp-shops and estate agents in places like Cornwall and Devon wondering how they are going to pay for Christmas. They are the collateral damage, the unintended consequence, and a demonstration of the Laffer Curve in action where you increase taxation to the point that your tax-take actually declines - in this case through a mixture of cancelled transactions and reduced economic activity in the area. But, as in London, the best - in the case of Rock, say near Porthilly Cove, will still be firmly in the sights of the freshly minted hedge-fund manager looking for a holiday home.
But you can’t blame the government for everything. If your house hasn’t sold and you haven’t had an offer it’s almost certainly overpriced. Estate agents never got poor by overvaluing and vendors are nearly always greedy. Under intense pressure to get instructions there are always agents who will tell sellers what they want to hear, even if they both know, in their heart of hearts, that they are flying a kite. A year or two and a price reduction or three later, the house will sell - probably for less than the price they would have got if they had priced it to stimulate competition. It was ever thus and we are seeing this in London, the country and the international markets we cover. And it’s now manifest in the stats. Between last September and May this year there were 145 houses on the market over £5m in the country areas that are not the Home Counties. Less than 20 have sold. Over that same period there was an interesting sale of a house by a partner of one of the big estate agents. The agent priced it to sell (he didn’t have to overvalue to get the instruction) and it did - with competition and at a full price.
We have spoken many times in the past about the relationship between London and the country. In the ‘good old days’ of the last decade of the last century the relationship was that you sold a nice house in Kensington (we used Scarsdale Villas as the example) and bought a nice rectory in Hampshire. In the noughties, London boomed and the ratio changed to two rectories for one London house. It’s now a rectory and a half as the country has slowly increased and London has tracked sideways. This is a ratio that is particularly useful for buyers in the country as many of them are sellers in London. Not that many go the other way.
If this all sounds like it’s a tough market, it’s because it is. But we’ve been here before, most recently with Covid (dead in London but boom in the country) and the aftermath of George Osbourne’s Stamp Duty shock and Brexit in 2015/16. The gap between sellers’ expectations and buyers’ willingness to pay takes time to close. Both eventually get to the point where they simply want to get on with the next stage of their lives and bite the bullet - but we aren’t there yet. The key thing in a market like this is knowing the difference between the ok and the excellent. If it’s the latter then both buyers and sellers are entitled to be bullish - and they quite rightly, are. It’s the former where the price gap remains. Knowing the difference between the two is at the heart of what we do.
