At the end of June, the Office for National Statistics published its annual migration statistics for the year ending June 2018. A close examination of this dataset reveals that London’s overall net migration is at its second lowest level in 14 years, despite more people moving to the capital from other parts of the country.
The two components of the above figures are internal migration (people moving between London and other parts of the country) and international migration (people moving between London and other countries).
We turn first to internal migration which usually gets less attention than it deserves as a result of the overwhelming focus on international migration. Every year since 2002 (when comparable records begin), London has seen net negative internal migration i.e. more people have left London for another part of the country than have moved there from the rest of the country. Since 2011 the net figure has been persistently getting more negative, until now. In the year to June 2018, London’s net internal migration stood at -103,230, up from -106,610 in the prior 12 month period.
One reason behind this shift is a drop in the cost of living across London, led by a softening housing market. In previous years, for many people living in other parts of the country moving to London was out of the question as a result of the high property prices. Similarly, a common reason for people to relocate away from London is the desire to live in a bigger property or to become a homeowner.
Over much of 2018 and 2019 average property prices in London have been in decline. This is in sharp contrast to the 2014 to 2016 period when annual price growth averaged over 10%. In line with this, the rental market has also been more subdued.
Part of the explanation behind the housing market slowdown is a slump in demand arising from lower international immigration flows into London, which have recovered only partially since a substantial drop in the year to June 2017. A slight increase in the number of people moving to London from the rest of the country, has not been able to make up for this, putting the overall (internal + international) net migration figure at just 9,560 in 2018 compared to a peak of 62,670 in 2011.
The barely positive net migration figure poses a number of risks for London’s economy. Many of the capital’s industries e.g. tech and creative have thrived as a result of the constant inflow of people and ideas. Furthermore, London has a certain dynamism stemming from migration that drives innovation, the benefits of which are felt far and wide.
Turning back to the housing market, international migration has not been the only factor driving down prices, especially as many recent migrants tend to rent. Other factors such as the recent increases in Stamp Duty Land Tax, oversupply of housing units at the prime end of the market and the deterioration of London housing’s status as a safe haven asset have all contribute to the perfect storm.
The price drops seen over the last couple of years may very well become more extreme should the Brexit process take a turn for the worse or as a result of a broader global downturn. Under the central scenario (no global recession, orderly Brexit) Cebr expects London house prices to fall 1.6% in 2019 before returning to growth of 1.5% in 2020. However, the risks are very much to the downside and our lower bound forecast sees prices decline around 10% by the end of 2020.
Contact: Nina Skero, Director – nskero@cebr.com – 020 7324 2876