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flairplay
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London Property Prices &"Middle Class Investment Bankers"

January 9th, 2007, 4:50 am

Opinions?There was a time when 1 Mio GBP was reasonable money. These days, if you are looking at a place reasonably central but not necessarily posh, even 1.5mio GBP does not go very far. Let's give the hypothetical City Trader, 35 years old, 2.4 kids+dog, 1.5mio GBP to buy a property with 250 - 300 sq metres, a garden, and a relatively safe street address. Not a lot out there.Knightsbridge would be at least 2.5-3.0 mio GBP, while even far away Wimbledon would be around 1.7mio GBP etc.In the eighties the Eurobond traders could get matching lifestyles, but London is increasingly priced out of the average person's take home. A senior MD, been around for a while, made the point over a cup of tea that "investment bankers are only middle class now." Which in a way is nice as it brings a sense of humility to a profession full of hubris. Some lucky ones have risen with the property market but for the newer entrants it is going to be a hard slog.
 
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Diskiss
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London Property Prices &"Middle Class Investment Bankers"

January 9th, 2007, 2:22 pm

If you say that, you assume that the average salary of the Middle Class now somehow equals the average salary of the city investment bankers. And from what i have seen so far, I think it's still quite far from the truth. So I hope you're not right because if london traders can now only afford a middle class life, it means that a big part of the london population can't afford it anymore.
 
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NorthernJohn
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London Property Prices &"Middle Class Investment Bankers"

January 9th, 2007, 10:26 pm

This is definitely true. You can only live a nice life (meaning nice house with a garage, good car, decent garden etc.) on "middle class" earnings if you inherited something.If you are not the beneficialry of a legacy (that would be me, then), then you really cannot have a house in an area like mine (Blackheath), unless you are on city money. A small 3 bedroom place, terraced, will be about a million now.
 
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GrenvilleCroll
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London Property Prices &"Middle Class Investment Bankers"

January 9th, 2007, 11:22 pm

It sounds like people are living in London for no other reason than they can afford to.What is wrong with that?
 
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zeta
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London Property Prices &"Middle Class Investment Bankers"

January 10th, 2007, 2:18 pm

one word: fixer-upper. Do the middle class in London still have trade skills? If not, there's always someone willing to do it for a price
 
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Traden4Alpha
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London Property Prices &"Middle Class Investment Bankers"

January 10th, 2007, 2:58 pm

I'm always fascinated by situations in which prices reach what appear to be unsustainable levels -- how can you have a large city in which prices are unaffordable to most of the citizens? After all, I doubt more than a few % of Londoners earn investment banker incomes or have million-Pound legacies. The phenomenon raises several questions:1. Are the asset prices for London flats overvalued? What is the P/E ratio for them -- how much is rent on a "$1.5 mio GBP" flat? Perhaps the high prices are temporary.2. A related issue is mortgage rates. Are they low? People don't pay P = 1.5 mio GBP for a flat, they pay r*P per month for a mortgage. If mortgage rates are low (or people are switching to adjustable-rate-mortgages that make initial rates seem low), then asset prices may be inversely inflated.3. Are liquidity issues part of the problem? If too few existing Londoners are willing to sell and too many wealthy people are arriving, then prices will will be unaffordable even as most of the existing citizens can afford a place. Is there much turnover in the London housing market?4. How much of the price increase is due to London's congestion pricing scheme for traffic? Are people moving in closer to avoid needing a car. Avoiding a 5 GBP weekday charge is worth a mere 25,000 GBP NPV @ 5%, but that doesn't include the "hate factor" (Research in e-commerce spending behavior showed that people would willingly pay $5 extra for a product to avoid $1 in sales tax). Add a hate factor and money saved by no having a car, and people might be willing buy a centrally-located flat for a 100,000 - 200,000 more GBP than they would otherwise.5. How much of this is attributable to a good mass-transit system? Without low-cost transport from the suburbs, a large high-price city core would be unsustainable because it would be starved of low-paid workers (waiters, secretaries, retail clerks, et al). A city doesn't need "affordable housing" if it has affordable transportation.I don't know much about London (I've visited a couple of times -- great city!) and would be very interested to hear what people think is the cause of so much housing being so unaffordable to so many people.
Last edited by Traden4Alpha on January 9th, 2007, 11:00 pm, edited 1 time in total.
 
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flairplay
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London Property Prices &"Middle Class Investment Bankers"

January 10th, 2007, 3:17 pm

London is where world's serious rich bring their money to.In the face of such continued capital influx, property prices in fashionable areas stay bid. The City too pays billions of GBP in bounses every year. So it is simple supply and demand. Lots of supply of capital, not enough supply of housing. Areas contiguous to fashionable ones keep on getting "gentrified"Notting Hill in the 80's, Battersea, Blackheath and Islington in the 90's and so on.I recall a quant at one of the major banks proudly telling that his Fulham House was worth 220k GBP - that was in 1996. That was probably his yearly compensation then - he had only a year or two experience under his belt. Prob that house is now worth 2mio GBP, but I doubt that yearly compenstaions are that.You just feel that property prices have outperformed average city compensations over the last 15 years.
 
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zeta
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London Property Prices &"Middle Class Investment Bankers"

January 10th, 2007, 4:02 pm

QuoteI don't know much about London (I've visited a couple of times -- great city!) and would be very interested to hear what people think is the cause of so much housing being so unaffordable to so many people. The trend certainly isn't restricted to London; you could sum up the nineties by the phrase 'getting out of dodge'. All across western culture, people are still up and leaving small towns and communities to join the rat race b/c when you boil it down, this is where the work/money is
 
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Cuchulainn
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London Property Prices &"Middle Class Investment Bankers"

January 10th, 2007, 7:58 pm

QuoteOriginally posted by: zetaQuoteI don't know much about London (I've visited a couple of times -- great city!) and would be very interested to hear what people think is the cause of so much housing being so unaffordable to so many people. The trend certainly isn't restricted to London; you could sum up the nineties by the phrase 'getting out of dodge'. All across western culture, people are still up and leaving small towns and communities to join the rat race b/c when you boil it down, this is where the work/money isHere are two countries where I have some information on.Ireland The NetherlandsRole of FundamentalsI met an emigrant retired Irish CS Prof last year (on Vesuvius !), he wanted to buy a wee cottage in the old country. When I told him a starting price what he said I cannot repeat. 15 years too late in buying.The housing problem is not only peculiar to London.
Last edited by Cuchulainn on January 9th, 2007, 11:00 pm, edited 1 time in total.
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zeta
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London Property Prices &"Middle Class Investment Bankers"

January 10th, 2007, 8:22 pm

thanks for the paper cuch, twas interesting... I read somewhere that Netherlands actually discourages people from migrating there...is this true?
 
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NorthernJohn
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London Property Prices &"Middle Class Investment Bankers"

January 10th, 2007, 10:02 pm

QuoteOriginally posted by: zetaone word: fixer-upper. Do the middle class in London still have trade skills? If not, there's always someone willing to do it for a price90% of the cost is the land that it is sitting on. Getting a fixer-upper is not going to knock more than a few percent off the price.
 
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zeta
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London Property Prices &"Middle Class Investment Bankers"

January 11th, 2007, 1:02 am

okay forget it, that is bad. At least in most US markets you can still 'flip' a house. So where is affordable? How far out exactly are you having to go now?I suppose (by analogy) I will end up in Northern Virginia after this and I bet I'll have to commute from Louden (500k home), about 40mins if I'm lucky