We all pay a high price for the houses of the super-rich

The British have been preoccupied with home ownership since the Fifties, but in London at the moment, the obsession has tipped over into a kind of insanity. People swap stories of buyers paying fantastically inflated prices and then squint at you with a faintly maniacal glance that asks: ‘Am I mad or has the world gone mad?’
Stories such as the one Lulu Egerton of the Lane Fox agency tells about putting a house in Chelsea on the market last week for £4.5m. She assures me it wasn’t a mansion, just a roomy town house, albeit in ‘one of the most desirable pieces of real estate in the world’. Within hours, she had an offer of £5.25m. Lulu has been an estate agent for 22 years, but has never seen anything like it. ‘For the first time, I’m finding London prices quite extraordinary. Our hearts are in our mouths when we ask for them, but we still get buyers.’
I ask Mira Bar-Hillel, the property editor of London’s Evening Standard, if she has a favourite example of irrational exuberance: an anecdote or statistic people will recall if a crash comes and say: ‘We should have realised then that we were in bubble market.’ She sighs and says: ‘Take your pick. I’m coming up with them every week. Russian oligarchs who don’t even ask the price of the homes they view, the average price of a flat in central London reaching £1m, garages selling for £150,000 and parking spaces selling for £100,000.’
She tells me to look at Nick and Christian Candy, property developers who offer the super-rich luxuries it has never occurred to the human race to desire before. My favourite is the memory mirror, a full-length video screen with a time delay so that the reflection you see is an image of you taken 10 seconds earlier. You may wonder why anyone would want such an apparently pointless contraption. Well, with a memory mirror, you don’t have to put yourself through the momentary inconvenience of looking over your shoulder to see if a dress fits neatly over your bottom. You can turn around and study your haute-coutured derriere in comfort.
The Candy brothers are converting the old London headquarters of the Bowater pulp and timber company, which they have pretentiously renamed it Number One Hyde Park. They intend to sell its 86 flats at up to £25m each. The price includes underfloor heating in the underground car park so that the buyers’ tyres don’t get cold.
Surely, nemesis must follow such hubris, I say to Ed Stansfield, an economist specialising in property at Capital Economics. Surely, such recklessly extravagant consumption can’t go on.
‘You’re going to think I’m utterly insane,’ he replies, ‘but it can.’ He points out that very rich and very poor immigrants have been pouring into London – one-third of the capital’s residents were born abroad. In the City, 4,000 bankers and traders received bonuses of £1m or more this year, while the green belt prevents the capital expanding. When you combine the law of supply and demand with low interest rates and the City’s status in a global market, you should be able to see why London prices can go still higher. In any case, he adds, they don’t look as overvalued as the prices of homes in the north west, Wales and the south west.
I’m sure his figures are right. But a Thirties semi in a booming part of the north west, Altrincham in south Manchester for example, costs about £250,000. Historically, that is a huge sum, but if a family wanted to sell and move to London, it wouldn’t get them far. A semi in an outer London suburb would cost about £100,000 more and the schools, the parks, the shops and the transport in the new area would be poorer. In inner London, they would be lucky to find anything better than a flat in a dangerous slum. They would be mad to move and, increasingly, people like them are not moving. The Confederation of British Industry complained last year about a shortage of affordable housing exacerbating skill shortages. London councils say that essential public-sector workers can’t afford to buy flats even with generous government subsidies.
What applies to outsiders thinking of coming into London applies equally to Londoners. Unless they have parents with a small fortune to give away, they tend to move out when they want to have a home big enough for children. Eleven of the 13 districts in Britain with the lowest proportions of households with married couples are in inner London. The result is that Britain has a capital with an hourglass figure. The middle is being squeezed between the very rich in fashionable districts and the very poor in the estates.
Even the purveyors of fine houses to the wealthy are alarmed by the segregated society that is growing up around them. Lulu Egerton kept talking about ‘the English’ clinging on to her plush Chelsea streets by their fingertips. When I asked her to explain, she said that hardly any of the buyers employing the services of the Candy brothers were English. They were Russian oligarchs and Arab petro-billionaires lured to London by Gordon Brown’s generous willingness to allow 60,000 foreigners to escape paying tax on income and investments held abroad.
Inevitably, they would be joined by Chinese and Indian plutocrats as Asia grew and she could see the time when the English rich would no longer be able to compete with foreigners being subsidised by the Chancellor and, by extension, every Observer reader who pays taxes. One day, they may have to give up on her Chelsea and David Cameron’s Notting Hill and move out of central London.
As I listened to her, I thought that the people who were worrying about what will happen if the property bubble bursts had good reason to be afraid, but they should be equally worried about what kind of Britain we will get if it doesn’t.