Rewind to a year ago. London was supposed to be where the housing price crash would hit hardest thanks to the collapse of the capitals’ financial institutions and the death of big banking bonuses.

Well just 12 short months after the collapse of Lehman Brothers both London property prices and big banker’s bonuses are back. JP Morgan Chase revealed last week that it will be paying bonuses totalling almost £18 billion, Royal Bank of Scotland’s bonus pot totals £4 billion and Barclays Bank is on track to post record profits of more than £10 billion for 2009, triggering multi-million pound bonuses for their staff.

But let’s focus on London’s property prices. I have always maintained that the UK, and in particular London, suffers from an acute imbalance between supply and demand for good quality property.

Last month, the number of buyers in London was 30 per cent higher and supply was 20 per cent lower than in September last year, according to Estate agents Knight Frank. But London is also more affected by undersupply than the rest of the country. Breaking ground for new developments in London boroughs have fallen by more than 50 per cent since 2007.

I have written before about using the media hype to your advantage as an investor. So let’s grab a copy of last weeks Sunday Times and see if we can connect the dots.

Scrimp and save for a deposit? Not likely – today’s young adults are having too much fun, says Peter Knight, 28

“More than one in four adults in some British cities no longer have the desire to own their own homes.”
“Anna Brunskill, 30, is head of the history department in a school in Bristol. “You have to make a choice between saving up for a house or living the life you want,” she says. “I have decided to stay in rented accommodation so I can have amazing holidays, go to nice restaurants and wear nice clothes.” Crunch the numbers to see what she means. Brunskill earns a little more than £40,000 a year, but would need to save at least £20,000 for a decent deposit on a two-bedroom flat within easy reach of work. After rent and bills, she is left with £1,000 of disposable income every month, but even if she squirreled away half of that — quite an achievement — it would still take her almost 3½ years to accumulate enough for a deposit, provided prices hadn’t moved out of her reach in the meantime.”

Marriage falls to the 11-year itch

“Brynin’s book follows ONS figures showing that the number of UK marriages in 2007 fell to 270,000, a 2.6% decline from 2006. In 1940 there were 426,100 weddings. The 2007 figures also show that 144,220 couples were divorced and the average length of marriages ending in divorce was 11.5 years.”

Influx of 1m migrants will cripple public spending, warn MPs

“The Office for National Statistics is expected to show that the population will grow by 10m to more than 70m in about 20 years. About 7m of the increase will be due to immigration. The MPs’ group argues that the only effective way to control immigration is to balance the numbers coming in with those going out.”
“Research published by Field’s group last month showed that by 2013 an extra 96,000 primary school places will be needed in England and Wales — the equivalent of nearly 500 primary schools.”

Without sounding heartless, all three articles make good reading for a London property investor if you understand what to look for. The first article states quite clearly that it is taking longer for first time buyers to buy a place of their own, if they buy at all. I read – more tenants for a longer period of time.

The second says that fewer people are getting married while the divorce rate is up. I read – everyone needs a place to live. More single adult household’s means more tenants.

The final article is a sensational piece but the figures no less real or interesting. Net migration onto an island with limited housing and limited space to build more can only mean higher demand which will have a direct affect on rising both housing prices and rents.

As another famous pipe-smoking London resident would have put it: "Elementary, my dear Watson. Elementary”

Wishing you health, wealth and happiness,

Mike Smuts
Property investor and MD of Smuts & Taylor.