Interview with Richard Donnell – London Residential Market

The London Residential Market is facing uncertain times. The Help to Buy equity loan scheme is ending, prices are unpredictable and there is an ever-shortening quantity of stock.

Ahead of our 16th annual London Resi Conference (on the 8th March), we caught up with Richard Donnell, Executive Director at Zoopla to explore the current market.

Richard is a leading property industry figure best known for delivering insight and strategic advice on the residential and mortgage markets. He also has a deep understanding of how technology and data can unlock business value across the residential and mortgage lifecycle. 

Richard runs Zoopla’s thought leadership leveraging their unique data assets and consumer insights to provide market leading insight for industry leaders across investment, development and mortgage lending, including Government. 

Richard started his career at Savills in 1994, moving to data and analytics business Hometrack in 2006 which was acquired by ZPG Plc in 2017.

So, how is the current London residential market looking?

For the last five years the London market has lagged behind the rest of the UK, both in terms of prices and volume of transactions. Multiple tax changes from 2013 coupled with Brexit in 2016 resulted in the volume of transactions dropping by 30% by 2019.

It’s the volume of transactions more than sale prices that support business plans for land purchase and investment. The higher the volume of sale, the stronger prospective investment is.

Although the volume of transactions is up, markets outside of London are still increasing at a quicker rate. London’s biggest challenge is affordability. It is an expensive place to live.

There is a lack of stock, prices are high and the way we work (the need to live within commuting distance of the office) have all changed. This all adds up to a flatter than expected market.

With this in mind, what do you think will happen to house prices in the next 24 months?

We think UK house prices will fall by 5% next year. This drop will probably be slightly higher in London with a predicted reduction of 7%. The most expensive markets will be hit harder by higher mortgage rates and with London being at the top of this list, it is likely to be towards the top end of projected price reductions.

Where are the opportunities for this market?

There are potentially a lot of opportunities here. London is attractive to overseas investors as there is more value for money currently. When interest rates come down, we will be an even more attractive proposition. As the dollar is so strong London property is the same price as it was 10 years ago which will start to attract more foreign investment.  

Historically, south of the river was a focus for development but there will be more development in central London as office space and retail isn’t utilised as much as it was pre-pandemic but the risks of development remain high.

This assumption comes with a lot of caveats but investing in central London residential property could present a great opportunity for the right investors with a long term view.

What’s happening with the London new build market?

40% of all new builds in London are bought by UK investors. 22% are help-to-buy (although this scheme is ending), 12% is foreign investment, 6% is a switch to affordable housing, 4% bought by home owners and 3% are bulk deals.

Currently, there are no replacement products for the 22% help-to-buy market. The question is “how will we attract additional investments to cover this sizeable gap?” In addition to this, the number of homes being built are the lowest for 10 years as the demand for new build homes is in decline.

There’s a huge affordability challenge here and builders will be reluctant to reduce their headline prices as there is not let up in cost pressures for developers..

The bigger question is what is going to drive London’s economy? Grads have tended to stay in other cities and if the employment base and immigration tightens further, the economy won’t grow fast enough to really drive the demand for home. The government is signalling that it knows that the financial market workplace needs some attention, which will attract international investment and employees. This will hopefully stimulate the London economy, bringing new build property with it.

Are there any surrounding towns worth keeping an eye on?

One of the challenges with London is it’s surrounded by green belt land. It makes it very hard to do substantial build projects around the greater M25.

Swindon, Milton Keynes and Peterborough are key areas for growth – all are accessible and are currently delivering a lot of homes. If people only need to be in the office two days per week the potential reach of where to live is getting bigger. When employees were expected to be office based five days per week, people were mindful of not having a long commute. For the people working from home places such as Margate, Hastings, Bristol and Bath are all real options to live in. These are the areas worth keeping an eye on.

Any final thoughts?

It’s not been easy in London for residential developers for the last few years. Policy costs have been rising on numerous fronts and with lower price gains this is putting pressure on scheme viability.   Sales rates and pricing will be support by faster employment growth. , We need a clear strategy for the creation of jobs in London and capital to drive investment, which will all drive the housing market. The London residential property market is currently rediscovering its position as a global city in a more regulated, post-Brexit economy.

To learn more about the London residential market, book your ticket to our 16th annual London Resi Event by clicking here.