Margaret Thatcher and the property boom

A report by estate agency Stirling Ackroyd has certainly given property investors food for thought with regards to the best political environment in which to invest in property. The report goes back to 1979 taking into account the largest price movements in the London property market under various prime ministers. When you bear in mind the massive changes in the 1980s it will perhaps come as no surprise to learn that under Margaret Thatcher the average house price in London increased by a phenomenal 251%.

Big bang

Those who follow the UK economy will be well aware that during the 1980s the Margaret Thatcher led Conservative government triggered the “big bang” financial deregulation of London. This led to an enormous inflow of wealth into London increasing business, worldwide influence and attracting some of the wealthiest individuals to the area. Even though London has been one of the more prominent financial markets for centuries there is no doubt it has cemented this position over the last 30 or 40 years.

Property prices

The average London property price when Margaret Thatcher came to power stood at £31,370 and by the time she left office in 1990 this figure stood at £110,110 – the equivalent of 12.1% growth for each year of her premiership. While this trend in property price growth was replicated across the UK it was not replicated at the same level as London.

It will perhaps come as no surprise to learn that under Tony Blair there was also a significant increase in property prices in London. While significantly lower than the performance during the Thatcher years an increase of 209% during Tony Blair’s premiership was no mean feat. David Cameron on the other hand presided over a 53% increase in London property prices between 2010 and 2016 although this does take in the majority of the worldwide financial crisis which began in 2007.

House price to earnings ratio

We often look at the house price to earnings ratio as measurement of how “expensive” property markets have become or how detached they are from the underlying employment market. This is perfectly replicated by the London market which had a ratio of 3.7 in the first quarter of 1983 but by the second quarter of 2016 this ratio had increased to a phenomenal 10.4. It is therefore as clear as night follows day that first-time buyers have been squeezed out of the London market.

The average house price to earnings ratio for the UK as a whole has also increased over this period rising from 2.7 up to 5.3. While this in itself has had a major impact upon many areas of the UK it also shows how very different the London property market is to the rest of the UK.

How did the other prime ministers compare?

Since 1979 London property prices have risen dramatically under Margaret Thatcher, Tony Blair and at a more moderate rate under David Cameron. However, John Major actually presided over a reduction in London property prices by 1% as did Gordon Brown during his relatively short tenure ship.

While we need to take these figures into consideration set against the economic and political background of the time it was perhaps Margaret Thatcher with the “big bang” project and the creation of the right to buy strategy which changed the UK property market forever. Poor John Major and Gordon Brown were both in power when the UK economy struggled and as a consequence their legacies have perhaps been unfairly impacted?

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