For around two decades – covering the last 15 years of the last century and the first five of this one – it seemed as if the Edinburgh housing market would defy gravity and become the first bubble that continually expanded without ever bursting.
Year on year house prices inflated by at least 5 per cent in most areas of the capital and by considerably more in the most popular locations, particularly top whack properties in the New Town, Grange, Merchiston, Bruntsfield, Stockbridge and Comely Bank.
That all came to an end, of course, with the financial crash of 2007, although there had been warning signs of trouble ahead for up to 18 months earlier. Even then the Edinburgh “bubble” did not burst but it certainly deflated and almost a decade passed before the market started to rev up again.
So are we back to “business as usual” with another 20-year period of house-price inflation on the immediate horizon? Hopefully the answer is “no”, not least because it will make things even more difficult for first-time buyers and I simply cannot see the cost of housing continually surging ahead of wage rises. However it does seem likely we will return to some level of year-on-year price growth, albeit with one big exception.
When home-ownership began to gain popularity around a century ago, the price of houses was determined by two factors – location and size of property – and roughly came within the following categories: lower and upper entrypoint; lower-middle, middle and upper-middle; and, finally, top of the range. Since then prices (along with the general cost of living) have risen, pro rata, in each category across the UK but now that is changing in Scotland.
It is clear, as part of its grand plan to achieve its goal of reviving a separate Scottish state, the SNP government wishes to extenuate any social and economic differences currently existing between Scotland and England and it is now succeeding in doing so when it comes to housing – with unfortunate consequences. Put simply, the tax on a £1 million housing transaction is now £24,350 more in Scotland than in England; yep, a difference alright but not one likely to attract inward investors to set up home here.
I realise I tend to bang on about the Land and Buildings Transaction Tax (LBTT) but it really is impossible the underestimate the harm done to the market by the draconian rates affecting top-end properties. Indeed Edinburgh has probably been more adversely affected by this tax because top-end properties make up a higher proportion of the overall market than anywhere else in Scotland.
The result is that sales involving such properties have been drying up, with owners selling only if they really have to, e.g. taking up a new job in another part of the country. Otherwise they are making internal improvements, building extensions or simply making do with the space they already have. Ironically, this has led to a surge in prices at the top end of the market simply because so few of them are becoming available and so buyers, though much reduced in numbers, are having to compete. In other words, the market has become a healthy body but without a head.
Consequently this recovery is different from similar periods in the past in that the lower and middle sections will be buoyant but sales at the top in the doldrums. This situation will be compounded by cash-rich investment buyers avoiding top-end and upper-middle flats and putting their money into two or three lower-priced properties instead. The one silver lining in this giant cloud is that it will decrease the gap in average prices between middle-market and top-end properties. In theory this should make it easier for those buyers who have a policy of continually “trading up” as their personal incomes increase, to gain a foot on the very top rung of the housing ladder; but given the draconian tax rates already referred to, will they want to do so?
- David Alexander is managing director of DJ Alexander