After the Olympics were awarded to London in 2005, many people expected the housing markets in the five host boroughs to thrive, with demand boosting house prices. But it hasn’t quite turned out that way.
House prices in the Olympic boroughs have increased by an average of just 4% year-on-year since 2005, compared with an overall London average of 5%. Prices in the most exclusive and desirable boroughs grew at annual average rates of 9% and 6% respectively.
So, what happened?
There is clearly a demand to live in the Olympic boroughs. New data from the 2011 Census shows that between 2005 and 2011 the number of households increased by 11%, compared to the London average of 4%.
The influx of workers to build the Olympic Park was one of the reasons for this increase, but the boroughs are also cheaper places to live than other parts of the capital, so are likely to have attracted people migrating to London.
With such a big increase in households, we might have expected a greater rise in house prices. But demand is only half of the story. The number of dwellings also grew faster in the host boroughs than in other parts of London which helps explain why prices grew less quickly.
But, perhaps more interesting, is the significant increase in average rents in the Olympic boroughs – 36% between July 2010 and 2012 – twice as fast as the average for London.
There are three main reasons for this.
The first is the tenure mix. Social housing in the Olympic boroughs accounts for 34% of the total dwelling stock compared to an average of 23% in London and 18% across England and Wales. This means the availability of private housing to accommodate new households is smaller than the total count of dwellings suggests.
Workers who moved into the host boroughs are unlikely to be eligible for social housing so are more likely to have gone straight into the private rented sector. Most wouldn’t have wanted to buy because they will move on once the work finished.
Secondly, affordability is an issue. Average household incomes in the Olympic boroughs are about 90% of the London average, making the house price to earnings ratio over 9%. The upshot is that it’s harder to buy, so demand is pushed into the private rented sector – hence the escalation of rents.
Finally, there’s the age structure of the population. London has a higher than average proportion of its population in the 20-35 age group; 28% compared to 20% for England and Wales, but the host boroughs have the highest proportion at 33%, according to the 2011 Census. People in this age group are obviously less able or inclined to buy and find renting an attractive option.
However, it does appear that the Olympics will leave a positive legacy for housing. The investment in infrastructure and improvements in the fabric of the area have made the host boroughs more attractive. And, house sales are picking up more quickly in the Olympic boroughs than in England & Wales, or London as a whole.
In London the annual rate of growth of activity in Q1 was 17.8%, but it was 23.5% in the Olympic boroughs. As transactions are a better measure of demand than prices, this could be a signal that these boroughs are now becoming more attractive places to buy.
