The London housing market forces us buyers to do irrational things

It was early December when my partner and I walked into a bright four bedroom house in Stoke Newington, North London and made an offer at the asking price. This was the first house we had seen and although the garden was a little smaller than we had imagined, the property ticked all the other criteria: size, school catchment, generous ceilings, an attic that we could convert into a studio .

After a brief negotiation with another bidder, the real estate agent called us later in the week to say our offer had been accepted.

“This feels almost too easy,” I said to my partner. It had taken nine months, hundreds of viewings and half a dozen offers to find our current home, a one bedroom garden apartment in nearby Highbury.

It turns out was too simple. Our assessor called it a “problem house”. My partner called it “Thorpe Park” (after the amusement park near London). There were signs of leaks everywhere: from the roof, the gutters, the kitchen and bathroom plumbing, to the shower and bath on the second floor. The baseboards in the hallway were rotted by cat urine, the owner later informed us.

In addition, the owners of the neighboring house would soon start drilling for a basement extension, which could lead to cracks in the plaster. We withdrew our offer and wished the sellers luck.

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Little did we know we were in the midst of one of the worst housing shortages in the country’s history – one that felt particularly bad in Stoke Newington, where our search was concentrated.

A former working-class neighborhood on Hackney’s western edge, it has undergone significant upscale development in recent years, attracting creative types in their 20s looking for lower rents than Islington, and young families keen to learn from the highly rated primary schools be attracted. According to property search site Zoopla, demand for homes in the area in the first quarter of this year was more than double the five-year average – but the number of homes for sale was lower than average.

“It’s ridiculous,” says Julian Reid, who founded an estate agent in Stoke Newington three decades ago. “Russia invades Ukraine, the economy is in shambles, and yet house prices are rising. It makes no economic sense.”

Since we began searching in December, prices for historic houses in Stoke Newington have gone from around £830 to £1,000 per square foot, with some smaller houses asking £1,100 or more. “We used to work at £800 per square foot, but that math doesn’t work anymore,” says Reid. “It makes valuing real estate almost impossible.”

Reality came at the end of January when we viewed a similar sized house down the road from the first we had seen, but for sale for £100,000 more. As we surveyed the kitchen – crammed full of computer equipment, dead houseplants and buckets of protein powder (the house has been rented out to three young men for weightlifting) – the agent said a Cheshire man had made a cash offer hours earlier for £100,000 over the asking price . He bought the house for his daughter, who had just graduated from college. This sparked a bidding war and he ended up paying £175,000 over the asking price.

The lack of supply has created a kind of despair among buyers, including us.

Real estate agents have become the almighty gatekeepers of off-market real estate. We must curry favor with them or risk being removed from their list. Agents speak of “heartbreaking” letters accompanying offers, with pictures of people’s dogs and children (“‘Please give us a home’—almost like they’re penniless,” says one agent). We’ve advertised more than 300 homes with leaflets hoping to persuade owners to engage in an over-the-counter transaction – a futile exercise that has produced just three leads, all of which have referred us to unpopular neighbors looking to sell them.

Line chart of indexed supply of houses (100 = 5 year average) showing that the number of houses for sale across London is historically low

Those who advertise their property make little effort with the presentation. Don’t bother hiring a designer to stage a home: peeling wallpaper, neglected gardens and stained carpets are the order of the day. A family who had put their late mother’s tired-looking house up for sale in Highbury for £1.35million were in the process of building a rear annexe and had the contents of the kitchen and garden – sink, oven and other appliances – tumbled into the living room. It was hard to imagine the future children playing in a room that was practically a jump pad at the moment.

Five months into our search, we placed bids on 11 homes, six of which we lost to other buyers in best and final bidding rounds. We have tried to broaden our search and spent long nights discussing commutes from St Albans, Guildford and the Cotswolds. Lured by photos of a rustic looking cottage with garden studio, we spent an ill-fated Saturday driving to Ewell in Surrey where, five minutes from the station, my partner turned on his heel and suggested we head home.

Why is the demand for houses so high? Aside from the usual factors – London’s growing population, the finite number of historic properties alongside green spaces, a shift (for many) to spending more time at home – the threat of higher interest rates has created a sense of urgency among buyers. And because property prices are so much higher today than they were five to 10 years ago — and stamp duty is so much higher — buyers trade less often than they used to.

“We see people walking straight into a house from a one-bed room,” says Anna Takkou, sales manager at Location Location in Stoke Newington. She adds that the average price per square foot for apartments is now significantly lower than houses in the area. “We don’t see apartments costing over £100,000 [the asking price].”

There is a very simple solution: don’t buy a house – buy an apartment; to rent; or not move. But renting is a nightmare right now, apartments are also expensive (and often too small for our plans), stamp duty is high and mortgage rates are about to rise. And who says prices will drop significantly? We fear that we may soon sell out all the houses in the area.

About once a week I wonder if we made the right decision to walk away from that first home whose seller is on course to swap deals with another buyer later this month. But then I remember the litter box.

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