London’s real estate 
outperformance over the last three decades has been so spectacular that, to some people, London seems like a foreign country, a country different to and separated from the rest of the UK. As Lucian Cook shows in 'Is prime London at a crossroads?', the quantum and movement of house prices in prime London boroughs are much more closely aligned to Kensington & Chelsea than to England and Wales and as far away from the economically stricken regions of post industrial England as it is possible to be.

It was not always like this. Between 1969 and 1983, London’s house 
price growth was well below that 
seen in the rest of the South East and even below the UK as a whole. We forget that prior to the deregulation 
of the financial markets in 1986 London was a declining national capital at the nadir of its power and had been losing its population to out-migration since 1936. London’s recent outperformance actually comes off 
a low base following decades of
underperformance.

There are few people with careers in property who remember this base, they can only recall the extraordinary period of the last 30 years when London’s population has grown significantly, the formerly declining and derelict inner city has been repopulated, London’s economy has significantly outperformed the rest of the country and the city has been promoted from the third division of declining national capital to the premier league of pre-eminent global cities.

It is hardly surprising that London’s real estate markets, its prime markets in particular, should have grown so strongly over such a period. The creation of wealth in the capital and 
the influx of money has increased demand for high quality housing so that areas that were de-gentrified between 1936 and 1984 have been re-gentrified, and the areas that we now call prime have spread significantly.

Had London’s housing supply been more elastic since 1984, the extent of house price growth would not have been so great. But the ‘machinery of the city’ before 1984, including transport and planning policy, had been geared to a declining population not an expanding one, so London’s renewed vigour took everyone by surprise. The realisation that London was undergoing an urban renaissance only started to be incorporated into planning and policy after the Urban Task Force reported in 1999, more than a decade after it began.

Despite a subsequently denser, more urban and appropriate response to a growing population, London is still not supplying housing at the rate that its population demands. Three decades of undersupply amounts to over 277,000 homes over a 30-year period and creates an unprecedented rarity value for London property.

The question now is whether the stellar performance of London property markets can continue. Prime London is already seeing a period of slower growth. Is this a cyclical slowdown after five years of very strong growth or have prime London prices reached a plateau from which a new, lower trajectory of price growth will follow? Can the area that we call prime London continue to grow and, if so, where will the next prime locations be? Read on to find out...

Taken from
Spotlight: Prime London Residential Market - Autumn 2014