In a way this makes no sense. Rent in London is high relative to other U.K. cities and many category peers in other countries.
Relative to London house prices however, which have rocketed since 2009-2010, rental values are low. That’s true elsewhere too: the U.K. house price to rental price ratio is 40 percent above its long-term average, the IMF says. There are well-stated reasons why that could be a new normal. Notably the supply of new housing has failed to keep pace with demand for a decade or more.
But it could be a new bubble. One reason why rents are a good comparator is that they tend to be constrained by income. Unless you make do with continually smaller living spaces and such what, rental values can’t increase much more than income growth, which in the U.K. has been pretty flat. That house prices have gone up by 40, 50 or even 60 percent in the capital in recent years suggests, to some degree, that property is over-valued.
In the meantime, some tenants have found themselves living in properties with a million pound+ paper value, paying rents commensurate with a valuation of only half or a third of that.