With the capacity for future house price growth across the capital as a whole seemingly constrained, attention will now become focused on whether there are still parts of London with capacity for price growth and the areas beyond the capital that are most likely to benefit from an injection of housing wealth generated in the big smoke.

Migration patterns can provide us with a good indication of how this might play out.

How does this explain the recent pattern of house price growth?

As we looked at in last quarter's edition of this publication the gap between London and most of the rest of the country is currently very wide.

This reflects the fact that recently a lot of housing wealth has been recycled in the London market and relatively little exported beyond the M25. In 2013 ONS statistics tell us that 360,880 people across all ages moved from one London borough to another. This is 50% more than moved beyond the boundaries of Greater London.

Where has London’s housing wealth been made and distributed?

Over the past 10 years the most housing wealth has been generated in London’s eight most expensive boroughs, across which the average sales price has more than doubled to reach just under £900k last year.

In 2013, over 44,000 people moved from these boroughs to 10 other London boroughs that include the likes of Lambeth, Hackney and Ealing, all of which have shown very strong recent price growth. The 10 local authorities beyond London that saw the most migration from the capital’s prime boroughs, still only saw under 10,000 incomers from these areas.

Click Graph 4.1 below to enlarge

What of the future?

The likes of Brighton, Bristol, Cambridge and St Albans are most likely to see the biggest wave of future price growth in the housing market, especially as a 51% increase in the average sales price over the past decade leaves them looking good value compared to London.

This list reflects the rise of urban prime markets that sees much higher migration from prime London boroughs than larger Metropolitan areas in the Midlands and the North. Though Birmingham sits just inside the top ten and Manchester and Leeds just outside it, the extent of migration from the most expensive parts of London is small relative to the wider local housing market, such that the effect becomes much more diluted.

What is the impact of migration from less expensive London boroughs?

Migration from the eight cheapest London boroughs to other parts of London is held back by the additional costs of moving to more affluent areas.

Four of the five biggest non-London relocation hotspots from these cheaper boroughs are relatively low value markets. Average sales prices in Thurrock, Dartford, Medway and Basildon were between £185,000 and £225,000 in 2013. In these areas relatively low 10-year price growth reflects a much lower injection of housing wealth from the capital and that will also contain future price growth.

Taken from
Residential Property Focus Q3 2014