The chief economist of Price Waterhouse Coopers says that although by some measures the London housing market looks ripe for a crash, other fundamentals suggest it is likely to stay afloat - even if future price rises are likely to be modest.
John Hawksworth admits that the top end of the London market has worrying characteristics - for example, he warns that many rich overseas buyers see the UK capital’s homes as purely financial investments to be held for capital gain, rather than as place to live or let out.
“Such pure financial investments tend to be more prone to speculative bubbles, though house prices will generally be less volatile than share prices given the higher transaction costs involved in buying and selling properties” he admits.
He says this situation has been worsened - for the most expensive properties, anyway - by sharp increases in stamp duty and the post-Brexit fall in the pound.
But looking at the capital’s total housing market, he says, the threat is less clear.
“It is certainly true that traditional metrics like the ratio of house prices to incomes have reached record highs in recent years in London, which could raise concerns that a bubble was emerging” he concedes.
But he says there are several fundamental factors that support this high price to income ratio.
“First, real mortgage rates remain very low by historical standards – indeed these may actually be negative for many borrowers given the recent rise in UK inflation to close to three per cent.
“Second, land with permission to build remains in chronically low supply within London and the green belt acts as a corset preventing high levels of new housebuilding in the immediate area around the city.
“Third, despite some recent decline in immigration following the Brexit vote, the population of London continues to rise faster than any other part of the UK according to the latest ONS estimates. So the underlying drivers of housing demand remain strong” Hawksworth believes.
Even so, he says future London house prices will be tempered, and well below those seen in the 2009 to 2015 period in particular.
“I would therefore expect average London house price rises to be sluggish for the next two or three years, but not for prices to crash” he says.
Hawksworth made his comments in an opinion piece in business newspaper City AM.